Annual Report • Sep 30, 2017
Annual Report
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Audited Annual Report and Financial Statements for the year ended 30 September 2017
Baronsmead Second Venture Trust is a tax efficient listed company which aims to achieve long-term investment returns for private investors.
The board of Baronsmead Second Venture Trust has the objective to maintain a minimum annual dividend level of around 4.5p per ordinary share if possible, but this depends primarily on the level of realisations achieved and cannot be guaranteed.
Baronsmead Second Venture Trust gives shareholders access to a diverse portfolio of growth businesses.
The Company will make investments in growth businesses, whether unquoted or traded on AIM, which are substantially based in the UK in accordance with the prevailing VCT legislation. Investments are made selectively across a range of sectors.
The Manager, Livingbridge VC LLP, aspires to select the best opportunities and applies distinctive selection criteria based on:
In order to ensure a strong pipeline of opportunities, the Manager invests in sector knowledge and networks and undertakes significant proactive marketing to interesting target companies in preferred sectors. This is building a database of businesses that are keen to maintain a relationship with the Manager ahead of possible investment opportunities.
For unquoted investments, the Manager is an involved shareholder (on behalf of the Baronsmead VCTs) and representatives of the Manager often join the investee board. The role of the Manager is to ensure that strategy is clear, the business plan is implementable and the management resources are in place to deliver profitable growth. The intention is to build on the initial platform and grow the business into an attractive target able to be either sold or floated in the medium term.
The Board believes that the Investment Manager, Livingbridge VC LLP, is performing well and have confirmed their continuing appointment. A more detailed explanation of how the business model is applied is provided in the Other Matters section of the Strategic Report on pages 18 to 21. The full investment policy can be found on page 62.
| Financial Headlines | 2 |
|---|---|
| Performance Summary | 3 |
| Chairman's Statement | 4 |
| Manager's Review | 7 |
| Ten Largest Investments | 12 |
| Principal Risks & Uncertainties | 16 |
| Other Matters | 18 |
| Report of the Directors | 22 |
|---|---|
| Board of Directors | 22 |
| Corporate Governance | 25 |
| Directors' Remuneration Report | 33 |
| Statement of Directors' Responsibilities | 38 |
| KPMG Independent Auditor's Report | 39 |
| Income Statement | 45 |
|---|---|
| Statement of Changes in Equity | 46 |
| Balance Sheet | 47 |
| Statement of Cash Flows | 48 |
| Notes to the Financial Statements | 49 |
| Investment Policy | 62 |
|---|---|
| Dividend History in the Last Ten Years | 63 |
| Dividends Paid Since Launch | 63 |
| Performance Record Since Launch | 64 |
| Cash Returned to Shareholders | 64 |
| Full Investment Portfolio | 65 |
| Shareholder Information and Contact Details | 67 |
|---|---|
| Corporate Information | 69 |
Symphony Ventures ("Symphony") was founded in 2014 and is a leader in Robotic Process Automation ("RPA"). It provides consulting, implementation and managed services to enterprise clients looking to automate operational processes that are manual, repetitive, complex and time consuming through RPA and Intelligent Automation solutions.
Founded by chief executive, Adam Frisby, in his bedroom in 2013, In The Style Fashion ("In The Style") is a trend-led, fast growing purely online fashion retailer. Its popularity has been driven, in part, by the business' royalty-based collaborations with celebrities and fashion influencers including E4's Binky Felstead, MTV's Charlotte Crosby and ITVBe's Billie Faiers along with one of the UK's leading fashion bloggers Sarah Ashcroft.
Plant Impact develops chemical sprays and seed treatments that growers use to increase crop yield and quality. The company's three commercially active products stimulate natural plant responses to help them cope with abiotic stress including heat, salinity, drought and chemical inputs.
FreeAgent Holdings ("FreeAgent") provides cloud-based accounting software to micro-SMEs and freelancers in the UK. The company was founded in Edinburgh in 2007 and offers customers intuitive tools to complete tasks such as time tracking, invoicing, expense management and tax related workstreams. FreeAgent markets to customers both directly as well as through accounting practices focused on its target customers.
If you have sold or otherwise transferred all of your shares in Baronsmead Second Venture Trust plc, please forward this document and the accompanying form of proxy as soon as possible to the purchaser or transferee, or to the stockbroker, bank or other agent through whom the sale or transfer was, or is being, effected, for delivery to the purchaser or transferee.
Net asset value ("NAV") per share increased 5.9 per cent to 97.6p before deduction of dividends in the year ended 30 September 2017.
NAV total return to shareholders for every 100.0p invested at launch.
313.5p
** includes proposed !nal dividend of 4.5p.
Dividends totalled 7.5p in the year to 30 September 2017, including the proposed final dividend of 4.5p to be paid on 2 February 2018.
7.5p
£5.5m unquoted investments and £3.4m quoted investments were made in the year.
£8.9m
The chart below shows the cash returned to shareholders based on the subscription price and the income tax reclaimed on subscription.
www.baronsmeadvcts.co.uk 3
The Chairman's Statement forms part of the Strategic Report.
Anthony Townsend Chairman
I am pleased to report a 5.89 per cent (5.43p) increase in NAV per share for the year to 30 September 2017 before dividend payments. The Board has proposed a final dividend of 4.5p per share, subject to shareholder approval, in order to maintain annual dividends of 7.5p per share.
On 30 November 2016, Baronsmead Second Venture Trust plc ("BSVT" or the "Company") merged with Baronsmead VCT 5 plc ("BVCT5") (the "BVCT5 Merger") resulting in the Company having a combined NAV of approximately £182m making it one of the largest VCTs in the industry.
The BVCT5 Merger was undertaken by way of the transfer of the assets and liabilities of BVCT5 in consideration for the issue of new shares in BSVT, on a NAV for NAV basis, to the shareholders of BVCT5. As a result, these mergers are accounted for as acquisitions in the Company's financial reports.
In the year to 30 September 2017, the NAV grew by 5.43p per share (5.89 per cent) to 97.60p before payment of dividends. This growth (together with reserves accumulated from successful realisations) has enabled us to recommend a final dividend of 4.5p making a total of 7.5p for the year.
| Pence per ordinary share |
|
|---|---|
| NAV as at 1 October 2016 | 92.17 |
| Valuation uplift (5.89 per cent) | 5.43 |
| NAV as at 30 September 2017 before dividends |
97.60 |
| Less: | |
| Interim dividend paid on 31 March 2017 |
(3.00) |
| Proposed final dividend of 4.50p payable, after shareholder approval, on 2 February 2018 |
(4.50) |
| Illustrative NAV as at 30 September 2017 after proposed final dividend |
90.10 |
Over the past 10 years the Company has provided its shareholders with an annual average tax-free dividend of 9.64p per share. With a share price of 89.50p per share this is equivalent to a net tax-free yield of 10.77 per cent representing an excellent return for the Company's loyal shareholders and one that the Board is proud of.
As at 30 September 2017, the portfolio comprised direct investments in 71 unquoted and AIM-traded companies providing shareholders with a diverse range of investments. During the year to 30 September 2017, the underlying value of the unquoted portfolio increased by 5.36 per cent reflecting the continued positive performance of most of the investments. The AIM-traded portfolio increased by 7.93 per cent and CF Livingbridge UK Micro Cap Fund has had a particularly strong year with a 26.87 per cent increase in value.
Following a period of adjustment to the more restrictive VCT investment rules introduced in November 2015, the Company invested a total of £8.93m in seven new and two follow on investments in the year to 30 September 2017. The Investment Manager has had to adapt its investment strategy to focus on the provision of development capital to younger companies. This is likely to result in greater volatility in returns over time, albeit the existing portfolio of larger investments will continue to determine returns for a number of years to come.
Livingbridge has continued to invest in its programme of proactively approaching prospective investee companies in order to identify a supply of new and attractive investment opportunities. Additionally, its value strategy team provides ongoing support and expertise to portfolio companies following the initial investment.
Following a period of divestments of the Company's more mature investments in 2015 and 2016, the pace of realisations slowed in 2017. A total of £9.06m was realised from the full and partial sale of investments and from loan note redemptions during the year.
Details of the Company's investments and divestments during the year are set out in the tables on pages 10 and 11 and further commentary on portfolio companies is provided in the Managers Report on pages 7 to 9.
As reported at the interim stage, following on from the changes to VCTs introduced in November 2015, earlier this year the Government announced that tax advantaged venture capital schemes (SEIS, EIS and VCTs) were to be included in the Patient Capital Review which aims "to ensure that high growth businesses can access the long-term capital that they need to fund productivity enhancing investment."
This resulted in the publication of the "Financing growth in innovative firms" consultation in August 2017, with the aim that any policy recommendations concerning VCTs and the other tax advantaged venture capital schemes would be presented to the Chancellor ahead of the Autumn Budget Statement on 22 November 2017. Over the summer, the Manager, along with others in the VCT industry including managers and industry representative bodies, has consulted with HM Treasury ("HMT") and provided evidence to support the view that VCTs are meeting the Governments policy objectives of providing financial support to developing high growth businesses and represent value for money for taxpayers.
We await the outcome of the consultation and the proposals to be announced in the Autumn Budget and hope that any changes to the VCT
7.5p per share in total dividend payments for the year, including proposed final dividend of 4.5p.
£8.9m invested during the year.
NAV total return of 313.5p per 100p invested for founder shareholders.
scheme will not constrain this support and will enable VCTs to continue to invest money and expertise in small, entrepreneurial UK companies in line with the Government's policy objectives.
Following the realisations achieved in 2015 and 2016 and the slowing down of the new investment rate in that period, the Company did not raise new funds in the 2016/17 year. As a result of the subsequent decrease in the rate of realisations and an improvement in the rate on new investment, in August 2017, the Board announced its intention to raise new funds to enhance the Company's resources available for new and follow on investments over the next two to three years. Consequently, on 4 October 2017 the Company launched an offer for subscription to raise £24m (before costs). As at 17 November 2017 shareholders had invested £20.6m. We would like to thank the Company's existing shareholders who so far have invested a further £11.1m and welcome the Company's new shareholders who invested £9.5m.
I look forward to meeting as many new and longstanding shareholders as possible at the Annual General Meeting to be held at 11.00 am on 30 January 2018, at Saddlers' Hall, 40 Gutter Lane, London, EC2V 6BR. As well as my own review of the year, there will also be presentations from the Manager followed by lunch for all shareholders.
Given the continued uncertainty over the timing and terms of the UK's exit from the European Union, the impact of Brexit on the UK economy remains unknown and largely unquantifiable. Although the UK economy has remained largely resilient to date, recent inflationary pressures and some softening in consumer confidence may serve to weaken that resilience
over the short term. As we await the outcome of HMT's deliberations over the Patient Capital Review it is hoped that HMT understand the industry's representations and will take full account of the benefits VCTs provide to the UK economy. We will know more following the Autumn Budget Statement on 22 November 2017.
Despite, these macro-economic and regulatory uncertainties, I believe our diverse investment portfolio exhibits a strength that underpins the returns to our shareholders. Our Investment Manager continues to invest in those systems and people that will help our portfolio companies to deliver profitable growth from which all our shareholders will benefit over the medium to longer term.
Chairman 21 November 2017
Andrew Garside Head of Unquoted Investments
Ken Wotton Head of Quoted Investments
Sheenagh Egan Chief Operating Officer
The year has seen another strong performance from the investment portfolio. We have begun to increase the rate of investment following a period of adapting to the VCT legislation introduced in November 2015.
The net assets of £187m were invested as follows:
| NAV (£m) |
% of NAV* |
Number of investees |
% return in the year** |
|
|---|---|---|---|---|
| Unquoted | 61 | 33 | 20 | 5 |
| AIM-traded companies | 88 | 47 | 51 | 8 |
| CF Livingbridge UK Microcap Fund |
20 | 11 | 44 | 27 |
| CF Livingbridge UK Multi Cap Income Fund |
3 | 1 | 43 | 4 |
| Liquid assets | 15 | 8 | N/A | – |
| Totals | 187 | 100 | – | – |
* By value as at 30 September 2017.
** Return includes interest received on unquoted realisations during the year.
Each quarter the direction of general trading and profitability of all investee companies is assessed so that the Board can monitor the overall health and trajectory of the portfolio. At 30 September 2017, 77 per cent of the 71 companies directly held in the portfolio (excluding the investments held by Collective Investment Vehicles) were progressing steadily or better.
The tables on pages 10 and 11 show the breakdown of new investments and realisations over the course of the year and overleaf is commentary on some of the key highlights in both the unquoted and quoted portfolio
The unquoted portfolio performance has been positive, growing by 5.4 per cent over the course of the year. The portfolio is valued by the Board using a consistent process every quarter. The majority of the value created by portfolio companies comes from trading and operational improvements including revenue and margin growth, rather than financial leverage.
During the year, £8.9m was invested in 9 companies including 7 new additions to the portfolio and 2 follow on investments. The largest investments were:
• In The Style Fashion Ltd (unquoted) is a trend-led, fast growing purely online fashion retailer. Its popularity has been driven, in part by the business' royalty-based collaborations with celebrities and fashion influencers. Our investment will be used to support the business in scaling up its operations including upgrading IT and
infrastructure, growing the team and moving into international markets.
Following a number of years of strong realisation activity this financial year has seen limited divestments from the portfolio.
Yeo Bridge and Kalyke Investments were two acquisitions vehicles set up in 2015, these became non-qualifying during the year and are subsequently being dissolved. There are now no acquisition vehicles in the portfolio and no intention to set up any new ones.
There was also a partial loan note redemption from Create Health during the year.
The quoted portfolio has shown strong overall performance over the year with an increase of 7.9 per cent. Stand out performers were Bioventix, a developer of antibodies for use in clinical diagnostics, following strong financial results and upgraded forecasts and Wey Education, a provider of online education services, following the achievement of a maiden group profit.
These were partially offset by weaker share price performance from Tasty, a casual dining restaurant operator, which downgraded forecasts on the back of well publicised restaurant sector weakness; and TLA Worldwide, which announced that certain accounting misstatements would result in a worse than expected 2016 financial result.
Proceeds from the sale of Electric Word totalled £2.78m making a return of 1.2x cost. £0.55m of proceeds were also received in the year following the partial sale of Escher Group Holdings and Ubisense Group making a return of 1.0x cost and 0.2x cost respectively.
CF Livingbridge UK Micro Cap Fund ("Micro Cap") performed strongly over the year increasing by 26.9 per cent (2016: 1 per cent). At 30 September 2017, BSVT's cumulative £6.2m investment was valued at £20.4m. As at 30 September 2017, the Micro Cap Fund held investments in 44 AIM-traded and listed companies. An investment was made in CF Livingbridge UK Multi Cap Income Fund ("Multi Cap") in July and since then the value has increased by 4.5 per cent. As at 30 September
2017, the Multi Cap held investments in 43 AIM-traded and listed companies.
Baronsmead Second Venture Trust had cash and cash equivalents of approximately £16m at the year-end. This asset class is conservatively managed to take minimal or no capital risk, a strategy outlined in prospectuses that have been issued in the past.
Investee companies continue to perform well, providing good returns over the year and a firm foundation for future returns. Having had a lull in the rate of new investment in 2016, we continue to adapt our deal origination and sourcing activities which have resulted in the Company adding 4 unquoted and 3 AIM-traded companies to the portfolio and we look forward to making further additions over the coming year.
Investment Manager
21 November 2017
| Company | Location | Sector | Activity | Book cost £'000 |
|---|---|---|---|---|
| Unquoted investments New |
||||
| In The Style Fashion Ltd | Manchester | Consumer Markets | Fast online fashion retailer | 2,750 |
| Symphony Ventures Ltd | London | Business Services | Robotic Process Automation implementation and consultancy business |
1,924 |
| SilkFred Ltd | London | Consumer Markets | Online fashion market place | 550 |
| Custom Materials Ltd | London | Consumer Markets | Retailer of customisable products | 275 |
| Total unquoted investments | 5,499 | |||
| AIM-traded investments New |
||||
| FreeAgent Holdings plc | Edinburgh | TMT* | Online accounting software | 788 |
| Rosslyn Data Technologies plc | London | TMT* | Data analytics software platform | 527 |
| Collagen Solutions plc | London | Healthcare & Education |
Develops and manufactures medical grade collagen | 412 |
| Follow on | ||||
| Plant Impact plc | Hertfordshire | Business Services | Crop enhancing products | 1,100 |
| CloudCall Group plc | Leicestershire | TMT* | Cloud based telephony platform | 599 |
| Total AIM-traded investments | 3,426 | |||
| Total investments in the year | 8,925† |
* Technology, Media & Telecommunications ("TMT").
† All investments other than investments in FreeAgent Holdings plc and CloudCall Group plc were made after BSVT acquired the assets of BVCT5 on 30 November 2016. Hence, the book cost of new investments shown (except for FreeAgent Holdings plc and CloudCall Group plc) relate only to the investments made by BSVT post merger. BSVT acquired the BVCT5 investment portfolio (total £39,138,000) on 30 November 2016.
| First investment |
Proceeds‡ | Overall multiple |
||
|---|---|---|---|---|
| Company | date | £'000 | return* | |
| Unquoted realisations | ||||
| Yeo Bridge Ltd | Dissolved** | Apr 15 | 2,312 | 1.0 |
| Kalyke Investments Ltd | Dissolved** | Apr 15 | 2,310 | 1.0 |
| Create Health Ltd | Loan repayment | Mar 13 | 1,100 | 1.3 |
| CR7 Services Ltd | Part trade sale | Aug 14 | 13 | 1.0 |
| Total unquoted realisations | 5,735 | |||
| AIM-traded realisations | ||||
| Electric Word plc | Cash offer | Mar 08 | 2,783 | 1.2 |
| Escher Group Holdings plc | Part market sale | Aug 11 | 490 | 1.0 |
| Ubisense Group plc | Part market sale | Jun 11 | 55 | 0.2 |
| Marwyn Management Partners plc | Write off | Nov 09 | 0 | 0.0 |
| Total AIM-traded realisations | 3,328 | |||
| Total realisations in the year | 9,063† |
‡ Proceeds at time of realisation including interest.
* Includes interest/dividends received, loan note redemptions and partial realisations accounted for in prior periods.
** Acquisition vehicle dissolved during the year.
† Deferred consideration of £60,000 was received in respect of Kingsbridge Risk Solutions and £7,000 in respect of Fisher Outdoor Leisure Holdings, both of which had been sold in a prior period.
No realisations were made before the acquisition of the BVCT5 investment portfolio and proceeds shown relate to those made after 30 November 2016.
The top ten investments by current value at 30 September 2017 illustrate the diversity of investee companies within the portfolio. For consistency across the top ten and based on guidance from the AIC, data extracted from the last set of published audited accounts is shown in the tables below. However, this may not always be representative of underlying financial performance for several reasons. Published accounts lodged at Companies House are out of date and the Manager works from up to date management accounts and has access to draft but unpublished annual audited accounts prepared by the auditor. In addition, pre-tax profit in statutory accounts is often not a representative indicator of underlying profitability as it can be impacted by, for example, deductions of non-cash items such as amortisation that relates to investment structures rather than operating performance.
IDOX Plc Berkshire
IDOX is a leading software and information management solutions provider, providing local authorities with software and managed services. These deliver seamless integration and automation from consumer websites through to document storage. In the private sector, its engineering information management software combines McLaren and CTSpace, who are leaders in their markets.
The Baronsmead VCT's first invested in IDOX in 2002, approximately two years after the company floated on AIM. Over the last decade IDOX has shown strong growth through a combination of organic growth and acquisition, and is now seeking to diversify from core local authority markets into the private sector to become a leading player in industries such as oil, gas and pharmaceuticals.
First investment: May 2002 Total original cost: £1,641,000 Total equity held: 4.2%
Original cost: £1,028,000 Valuation: £7,141,000 Valuation basis: Last traded Price % of equity held: 2.7%
| 2016 | 2015 | |
|---|---|---|
| £ million | £ million | |
| Sales: | 76.7 | 62.6 |
| Pre-tax profits: | 13.0 | 9.8 |
| Net Assets: | 65.2 | 53.6 |
| No. of Employees: | 676 | 572 |
(Source: IDOX PLC Annual Report & Accounts 2016.)
1 Netcall Plc Hertfordshire
Netcall is one of the UK's leading providers of customer engagement solutions. It supports organisations to deliver outstanding customer service and achieve a realistic return on their investment. Some of the challenges its solutions can help overcome include customer contact across multiple channels, resource utilisation, improving customer satisfaction ratings, process automation, unifying communications effectively and maximising available budget.
Currently over 750 organisations in the Public, Private and Healthcare markets use one or more of the Netcall solutions which include contact management, business process management, workforce optimisation and enterprise content management.
First investment: July 2010 Total original cost: £4,354,000 Total equity held: 17.3%
Original cost: £2,616,000 Valuation: £7,100,000 Valuation basis: Bid Price % of equity held: 10.4%
| 2017 | 2016 | |
|---|---|---|
| £ million | £ million | |
| Sales: | 16.2 | 16.6 |
| Pre-tax profits: | 1.7 | 1.7 |
| Net Assets: | 21.0 | 22.6 |
| No. of Employees: | 169 | 156 |
(Source: Netcall plc, Annual Report and Accounts, 30 June 2017.)
Bioventix manufactures and supplies high affinity sheep monoclonal antibodies for use in diagnostic applications such as clinical blood testing. The company was founded in 2003 as a biotechnology company and its strategy is to identify new or existing commercial assays for which there is a need for improved antibodies. It supplies antibodies to almost all of the global multinational immunodiagnostics companies. Since the Baronsmead VCTs first invested in 2013, the company has tripled its revenues and profits.
First investment: June 2013 Total original cost: £1,008,000 Total equity held: 7.5%
Original cost: £555,000 Valuation: £5,712,000 Valuation basis: Bid Price % of equity held: 4.1%
| 2016 | 2015 | |
|---|---|---|
| £ million | £ million | |
| Sales: | 5.5 | 4.3 |
| Pre-tax profits: | 4.2 | 3.1 |
| Net Assets: | 8.2 | 6.6 |
| No. of Employees: | 14 | 13 |
(Source: Bioventix plc, Annual Report and Accounts, 30 June 2016.)
for the year ended 30 September 2017
Dods Group Plc London
Dods (Group) Plc operates in the political communications market, delivering quality information and intelligent solutions across all media platforms to both the public and private sectors. Its aim is to drive personal and professional improvement to enable their customers to know more and perform better. Dods provides political information and public affairs communications in the UK and European Union and learning and training to the UK public sector.
The group operates at the forefront of its selected growth markets in the UK, France and Belgium, providing their customers, partners and the public with the skills, intelligence and platforms needed to engage effectively across the spheres of politics, public sector administration and public affairs.
First investment: March 2003 Total original cost: £5,289,000 Total equity held: 20.1%
Original cost: £3,268,000 Valuation: £5,551,000 Valuation basis: Bid Price % of equity held: 12.1%
| 2017 | 2016 | |
|---|---|---|
| £ million | £ million | |
| Sales: | 20.0 | 19.6 |
| Pre-tax profits: | 1.5 | 1.1 |
| Net Assets: | 27.3 | 25.7 |
| No. of Employees: | 196 | 210 |
(Source: Dods (Group) PLC Annual Report 31 March 2017.)
4 Inspired Energy Plc Lancashire 5
Inspired Energy is an energy consultancy business for commercial and industrial clients, providing energy procurement, management and advisory services to optimise energy costs and carbon emissions. Established in 2000, the company now has a team of 300 energy professionals who advise and manage over 10,400 clients. The corporate division comprises five subsidiaries and provides review, analysis and negotiation of gas and electricity contracts on behalf of corporate clients; the SME division offers reduced tariffs and contracts based on unique customer situation. The Baronsmead VCTs first invested as cornerstone investors in the 2011 IPO and since then Inspired Energy has grown revenues five-fold through both organic and acquisitive means.
First investment: November 2011 Total original cost: £1,437,000 Total equity held: 8.0%
Original cost: £861,000 Valuation: £5,337,000 Valuation basis: Bid Price % of equity held: 4.8%
| 2016 | 2015 | |
|---|---|---|
| £ million | £ million | |
| Sales: | 21.5 | 15.2 |
| Pre-tax profits: | 4.0 | 3.5 |
| Net Assets: | 14.9 | 11.3 |
| No. of Employees: | 200 | 119 |
(Source: Inspired Energy plc Annual Report 31 December 2016.)
Pho is a fast casual restaurant chain serving Vietnamese food. Pho – a noodle soup – is the national dish of Vietnam. Pho also offer a range of Vietnamese dishes, coffee, beer and fresh juices.
Pho was founded in 2005 and now operates from 25 sites in an array of channels: London High Street sites (e.g. Soho, Clerkenwell); regional sites (e.g. Brighton, Leeds); and food courts in shopping centres (e.g. Westfield).
Crew Clothing Co. is an English clothing brand with a wide range of active, outdoor and casual wear for men and women. Since it was founded in 1993, the brand has evolved into the fast growing premium active and casual wear sectors, but retained its unique heritage and positioning. Today it is a well known and respected clothing brand in the UK.
The business is a multi-channel retailer with its own branded retail estate, wholesale accounts and e-commerce channels. Growth will come from targeted store roll out and further e-commerce sales.
Happy Days is a leading child day care and early years education provider operating from 18 settings across the South West. The business focuses on delivering outstanding quality childcare in premium settings within its geographic markets.
The investment from the BVCTs has enabled Happy Days to continue its UK organic expansion strategy through the funding of new leasehold nursery settings in attractive markets.
First investment: July 2012 Total original cost: £4,415,000 Total equity held: 28.0%
Original cost: £2,422,000 Valuation: £5,139,000 Valuation basis: Earnings Multiple % of equity held: 13.6%
| 2016* | 2015** | |
|---|---|---|
| £ million | £ million | |
| Sales: | 19.4 | 14.1 |
| Pre-tax profits: | 0.0 | 0.0 |
| Net Assets: | 4.5 | 4.7 |
| No. of Employees: | 399 | 290 |
(Source: Pho 2012 Limited, Directors' Report and Financial Statements 28 February 2016.)
* 52 week period ended 28 February 2016.
** 53 week Period ended 1 March 2015.
First investment: November 2006 Total original cost: £5,833,000 Total equity held: 31.0%
Original cost: £2,904,000 Valuation: £5,032,000 Valuation basis: Earnings Multiple % of equity held: 15.1%
| 2016* | 2015** | |
|---|---|---|
| £ million | £ million | |
| Sales: | 58.3 | 55.0 |
| Pre-tax profits: | (2.8) | (2.6) |
| Net Assets: | 0.3 | 3.3 |
| No. of Employees: | 427 | 411 |
(Source: Crew Clothing Holdings Limited, Report and Financial Statements 30 October 2016.)
* 53 week period ended 30 October 2016.
** Year ended 25 October 2015.
First investment: April 2012 Total original cost: £7,617,000 Total equity held: 65.0%
Original cost: £4,180,000 Valuation: £5,029,000 Valuation basis: Earnings Multiple % of equity held: 31.5%
| 2016 | 2015 | |
|---|---|---|
| £ million | £ million | |
| Sales: | 7.0 | 6.2 |
| Pre-tax profits: | (1.8) | (1.6) |
| Net Assets: | (4.2) | (2.5) |
| No. of Employees: | 309 | 258 |
(Source: H. Days Holdings Limited Annual Report and Financial Statements 31 December 2016.)
Year on year sales growth of 18 per cent p.a. across the top 10 investments
Ideagen is a governance, risk management and compliance ("GRC") software and solutions business operating predominantly in the healthcare, transport, aerospace & defence, manufacturing and financial services sectors. It provides content lifecycle solutions that enable organisations to meet their regulatory and compliance standards, helping them to reduce corporate risks and deliver operational excellence. Its solutions cover enterprise and incident risk management, operational safety and quality management, audit risk management, and also content and clinical solutions for the NHS. Since the Baronsmead VCTs invested the company has executed an active buy-and-build strategy in the GRC software market to add capability and build on its market position.
Original cost: £1,650,000 Valuation: £4,904,000 Valuation basis: Bid Price % of equity held: 3.1%
| 2017 | 2016 | |
|---|---|---|
| £ million | £ million | |
| Sales: | 27.1 | 21.9 |
| Pre-tax profits: | 0.7 | 1.0 |
| Net Assets: | 46.4 | 33.7 |
| No. of Employees: | 305 | 248 |
(Source: Ideagen plc, Annual Report & Accounts, 30 April 2017.)
Carousel Logistics based in Kent, designs and manages bespoke supply chain management solutions for clients with time critical, challenging or high touch customer care needs. Carousel has a wide range of international clients for whom it delivers a complete integrated service including e-fulfilment, procurement, warehousing, distribution, reverse logistics and international in-night services. Livingbridge continues to support Carousel's continued business expansion within the UK and Europe. During the year Carousel acquired Munich based Fourth Party Logistics provider, LSi, to increase its network reach across Europe, establish new overseas offices and create additional client wallet share opportunities. This purchase was funded by debt.
First investment: October 2013 Total original cost: £5,595,000 Total equity held: 40.0%
Original cost: £2,336,000 Valuation: £4,672,000 Valuation basis: Earnings Multiple % of equity held: 14.7%
| 2016 | 2015 | |
|---|---|---|
| £ million | £ million | |
| Sales: | 21.4 | 16.8 |
| Pre-tax profits: | 2.0 | 1.7 |
| Net Assets: | 4.1 | 2.4 |
| No. of Employees: | 92 | 71 |
(Source: Carousel Logistics Limited Financial Statement 31 December 2016.)
Audited Annual Report & Financial Statements for the year ended 30 September 2017
The Board has included below details of the principal risks & uncertainties facing the Company and the appropriate measures taken in order to mitigate these risks as far as practicable.
The financial risks faced by the Company are covered within the Notes to the Financial Statements on pages 58 to 60.
| Principal Risk | Context | Specific risks | Possible impact | Mitigation |
|---|---|---|---|---|
| Loss of approval as a Venture Capital Trust |
The Company must comply with section 274 of the Income Tax Act 2007 which enables its investors to take advantage of tax relief on their investment and on future returns. |
Breach of any of the rules enabling the Company to hold VCT status could result in the loss of that status. |
The loss of VCT status would result in shareholders who have not held their shares for the designated holding period having to repay the income tax relief they had already obtained and future dividends and gains would be subject to income tax and capital gains tax. |
|
| Legislative | VCTs were established in 1995 to encourage private individuals to invest in early stage companies that are considered to be risky and therefore have limited funding options. In return, the state provides these investors with tax reliefs which fall under the definition of state aid. |
A change in government policy regarding the funding of small companies or changes made to VCT regulations to comply with EU State Aid rules could result in a cessation of the tax reliefs for VCT investors or changes to the reliefs that make them less attractive to investors. |
The Company might not be able to maintain its asset base leading to its gradual decline and potentially an inability to maintain either its buy back or dividend policies. |
|
| Investment performance |
The Company invests in small, mainly UK based companies, both unquoted and quoted. Smaller companies often have limited product lines, markets or financial resources and may be dependent for their management on a smaller number of key individuals and hence tend to be riskier than larger businesses. |
Investment in poor quality companies with the resultant risk of a high level of failure in the portfolio. |
Reduction in both the capital value of investors shareholdings and in the level of income distributed. |
|
| Economic, political and external factors |
Whilst the Company invests in predominantly UK businesses, it relies heavily on Europe as one of its largest trading partners. This, together with the increase in globalisation, means that economic unrest and shocks in other jurisdictions, as well as in the UK, can impact on UK companies, particularly smaller ones that are more vulnerable to changes in trading conditions. In addition the potential impact of leaving the European Union remains uncertain. |
Events such as economic recession, movement in interest or currency rates, civil unrest, war or political uncertainty or pandemics can adversely affect the trading environment for underlying investments and impact on their results and valuations. |
Reduction in the value of the Company's assets with a corresponding impact on its share price may result in the loss of investors through buybacks and may limit its ability to pay dividends. |
|
| Regulatory & Compliance |
The Company is authorised as a self-managed Alternative Investment Fund Manager ("AIFM") under the Alternative Investment Fund Managers Directive ("AIFMD") and is also subject to the Prospectus and Transparency Directives. It is required to comply with the Companies Act 2006 and the UKLA Listing Rules. |
Failure of the Company to comply with any of its regulatory or legal obligations could result in the suspension of its listing by the UKLA and/or financial penalties and sanction by the regulator or a qualified audit report. |
The Company's performance could be impacted severely by financial penalties and a loss of reputation resulting in the alienation of shareholders, a significant demand to buy back shares and an inability to attract future investment. The suspension of its shares would result in the loss of its VCT taxation status and most likely the ultimate liquidation of the Company. |
is compliant. |
| Operational | The Company relies on a number of third parties, in particular the Investment Manager, to provide it with the necessary services such as registrar, sponsor, custodian, receiving agent, lawyers and tax advisers. |
The risk of failure of the systems and controls of any of the Company's advisers leading to an inability to service shareholder needs adequately, to provide accurate reporting and accounting and to ensure adherence to all VCT legislation rules. |
Errors in shareholders records or shareholdings, incorrect marketing literature, non compliance with listing rules, loss of assets, breach of legal duties and inability to provide accurate reporting and accounting all leading to reputational risk and the potential for litigation. |
The Board maintains a safety margin on all VCT tests to ensure that breaches are very unlikely to be caused by unforeseen events or shocks. The Investment Manager monitors all of the VCT tests on an ongoing basis and the Board reviews the status of these tests on a quarterly basis. Specialist advisors audit the tests on a bi-annual basis and report to the Audit Committee on their findings.
The Board and the Investment Manager engage on a regular basis with HMT and industry representative bodies to demonstrate the cost benefit of VCTs to the economy in terms of employment generation and taxation revenue. In addition, the Board and the Investment Manager have considered the options available to the Company in the event of the loss of tax reliefs to ensure that it can continue to provide a strong investment proposition for its shareholders despite the loss of tax reliefs.
The Company has a diverse portfolio where the cost of any one investment is typically less than 5 per cent of NAV thereby limiting the impact of any one failed investment. The Board has appointed an Investment Manager that has a strong and consistent track record over a long period, invests in profitable companies in sectors in which it has specialised for the past eighteen years, undertakes extensive due diligence on all prospective investments, has an experienced value enhancement team who actively manage its investments and who take board seats and appoint experienced non-executive Directors on all unquoted and significant quoted investments.
The Company invests in a diversified portfolio of companies across a number of industry sectors, which provides protection against shocks as the impact on individual sectors can vary depending upon the circumstances. In addition, the Manager uses a limited amount of bank gearing in its investments which enables its investments to continue trading through difficult economic conditions. The Company always maintains healthy cash balances so that it can support portfolio companies with further investment should the investment case support it. The Board reviews the make up and progress of the portfolio each quarter to ensure that it remains appropriately diversified and funded.
The Board and the Investment Manager employ the services of leading regulatory lawyers, sponsors, auditors and other advisers to ensure the Company complies with all of its regulatory obligations. The Board has strong systems in place to ensure that the Company complies with all of its regulatory responsibilities. The Investment Manager has a strong compliance culture and employs dedicated compliance specialists within its team who support the Board in ensuring that the Company
The Board has appointed an Audit Committee who, along with the external auditors, review the internal control (ISAE3402) and/or internal audit reports from all significant third party service providers, including the Investment Manager, on a bi-annual basis to ensure that they have strong systems and controls in place including Business Continuity Plans. The Board regularly reviews the performance of its service providers to ensure that they continue to have the necessary expertise and resources to provide a high class service and always where there has been any changes in key personnel or ownership.
This section of the Strategic Report sets out the practical steps that the Board has taken in order to apply the business model, achieve the investment objective and adhere to the investment policy. The investment policy, which is set out in full on page 62, is designed to ensure that the Company continues to qualify and is approved as a VCT by HM Revenue and Customs.
Investments are primarily made in companies which are substantially based in the UK, although many of these investees may have some trade overseas. Investments are selected in the expectation that the application of private equity disciplines, including an active management style for unquoted companies, will enhance value and enable profits to be realised from planned exits.
The Board has delegated the management of the investment portfolio to Livingbridge VC LLP ("Livingbridge" or the "Manager"). The Manager has adopted a 'top-down, sector-driven' approach to identifying and evaluating potential investment opportunities, by assessing a forward view of firstly the business environment, then the sector and finally the specific potential investment opportunity.
Based on its research, the Manager has selected a number of sectors that it believes will offer attractive growth prospects and investment opportunities. Diversification is also achieved by spreading investments across different asset classes and making investments for a variety of different periods.
The Manager's Review on pages 7 to 9 provides a review of the investment portfolio and of market conditions during the year, including the main trends and factors likely to affect the future development, performance and position of the business.
Risk is spread by investing in a number of different businesses within different qualifying industry sectors using a mixture of securities. The maximum the Company will invest in a single company (including a collective investment vehicle) is 15 per cent of its investments by value of its investments calculated in accordance with Section 278 of the Income Tax Act 2007 (as amended) ("VCT Value"). The value of an individual investment is expected to increase over time as a result of trading progress and a continuous assessment is made of its suitability for sale.
The Company invests in a range of securities including, but not limited to, ordinary and preference shares, loan stocks, convertible securities and permitted non qualifying investments as well as cash. Unquoted investments are usually structured as a combination of ordinary shares and loan stocks or preferred shares, while AIM-traded investments are primarily held in ordinary shares. Pending investment in VCT qualifying investments, the Company's cash and liquid funds are held in permitted non qualifying investments.
VCTs are required to comply with a number of different regulations and the Company has appointed PricewaterhouseCoopers LLP ("PwC") as VCT Tax Status Advisers to advise it on compliance with VCT requirements. PwC reviews new investment opportunities, as appropriate, and regularly reviews the investment portfolio of the Company. PwC works closely with the Manager but reports directly to the Board.
The Company seeks to conduct its affairs responsibly and the Manager is encouraged to consider environmental, human rights, social and community issues, where appropriate, with regard to investment decisions.
The Company is required, by company law, to provide details of environmental (including the impact of the Company's business on the environment), employee, human rights, social and community issues; including information about any policies it has in relation to these matters and the effectiveness of these policies. The Company does not have any employees and as a result does not maintain specific policies in relation to these matters.
Livingbridge has an Environmental, Social and Governance ("ESG") policy. As a responsible investor, Livingbridge fully incorporates ESG factors into its investment programme. The ESG policy focuses on environmental, social and corporate governance factors, including risks and opportunities, affecting both the Company and/or specific portfolio companies.
Livingbridge undertakes an in-house risk assessment questionnaire pre-investment to highlight any significant or material ESG issues. Should any such issues be identified, these are then addressed via specific due diligence pre-investment.
Upon completion of an investment the completed in-house questionnaires are assessed by an external consultant to corroborate risks identified, advise the company how to address any ESG issues and also to identify any potential upside opportunities (e.g. energy savings). Relevant ESG matters are then included in the portfolio company board meetings as appropriate and also in the standard Livingbridge portfolio progress reports allowing Livingbridge to assess the impact of any interventions or recommendations.
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.
The Board of Directors of the Company comprises four male Directors. The Manager has an equal opportunity policy and currently employs 47 men and 38 women.
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 on pages 4 to 6. The Board assesses the performance of the Manager in meeting the Company's objective against the Key Performance Indicators ("KPIs").
Under the management agreement, the Manager receives a fee of 2.5 per cent per annum of the net assets of the Company. In addition, the Manager is responsible for providing all secretarial, administrative and accounting services to the Company. The Manager has appointed Link Alternative Fund Administrators Limited to provide these services to the Company on its behalf. The Company is responsible for paying the fee charged by Link Alternative Fund Administrators Limited to the Manager in relation to the performance of these services.
Annual running costs are capped at 3.5 per cent of the net assets of the Company (excluding any performance fee payable to the Manager and irrecoverable VAT), any excess being refunded by the Manager by way of an adjustment to its management fee. The running cost as at 30 September 2017 was 2.7 per cent.
The management agreement may be terminated at any date by either party giving twelve months' notice of termination and, if terminated, the Manager is only entitled to the management fees paid to it and any interest due on unpaid fees.
A performance fee is payable to the Manager when the total return on net proceeds of the ordinary shares exceeds 8 per cent per annum (simple). To the extent that the total return exceeds the threshold over the relevant period then a performance fee of 10 per cent of the excess will be paid to the Manager. The amount of any performance fee which is paid in an accounting period is capped at 5 per cent of net assets.
No performance fee was payable for the year to 30 September 2017 (2016: £nil).
The Board is keen to ensure that the Manager continues to have one of the best investment teams in the VCT and private equity sector. A co-investment scheme was introduced in November 2004 under which members of the Manager's investment team invest their own money into a proportion of the ordinary shares of each eligible unquoted investment made by the Baronsmead VCTs. The Board regularly monitors the co-investment scheme arrangements but considers the scheme to be essential in order to attract, retain and incentivise the best talent. The scheme is in line with current market practice in the private equity industry and the Board believes that it aligns the interests of the Manager with those of the Baronsmead VCTs.
Executives have to invest their own capital in every eligible unquoted transaction and cannot decide selectively which investments to participate in. In addition, the co-investment only delivers a return after each VCT has realised a priority return built into the structure. The shares held by the members of the co-investment scheme in any portfolio company can only be sold at the same time as the investment held by the Baronsmead VCTs is sold. Any prior ranking financial instruments, such as loan stock, held by the Baronsmead VCTs have to be repaid in full together with the agreed priority annual return before any gain accrues to the ordinary shares. This ensures that the Baronsmead VCTs achieve a good priority return before profits accrue to the co-investment scheme.
The executives participating in the co-investment scheme subscribe jointly for a proportion (currently 12 per cent) of the ordinary shares available to the Baronsmead VCTs in each eligible unquoted investment. The level of participation was increased from 5 per cent in 2007 when the Manager's performance fee was reduced from 20 per cent to its current level of 10 per cent.
Since the formation of the scheme in 2004, 72 executives have invested a total of £896,000 in 49 companies. At 30 September 2017, 33 of these investments have been realised generating proceeds of £275.6m for the Baronsmead VCTs and £13.9m for the co-investment scheme. For Baronsmead Second Venture Trust the average money multiple on these 33 realisations was 1.8 times cost. Had the co-investment shares been held instead by the Baronsmead VCTs, the extra return to shareholders would have been the equivalent of 3.6p a share (based on the current number of shares in issue). The Board considers this small cost to retain quality people to be in the best interests of shareholders.
During the year the Manager and an affiliate received £48,000 (2016: £nil) advisory fees, £448,000 (2016: £252,000) directors' fees for services provided to companies in the investment portfolio and incurred £14,000 (2016: £12,000) abort fees with respect to investments attributable to BSVT.
The AIFMD regulates the management of alternative investment funds, including VCTs. On 22 July 2014 the Company was registered as a Small UK registered Alternative Investment Fund Manager under the AIFMD.
In accordance with principle 21 of the AIC Code of Corporate Governance ("AIC Code"), the Directors have assessed the prospects of the Company over the three year period to 30 September 2020. This period is used by the Board during the strategic planning process and is considered reasonable for a business of our nature and size. The three year period is considered the most appropriate given the forecasts that we request from the Manager and the estimated time line for finding, assessing and completing investments.
In making this statement the Board carried out a robust assessment of the principal risks facing the Company, including those that might threaten its business model, future performance, solvency, or liquidity.
The Board also considered the ability of the Company to raise finance and deploy capital. Their assessment took account of the availability and likely effectiveness of the mitigating actions that could be taken to avoid or reduce the impact of the underlying risks.
This review has considered the principal risks as outlined on pages 16 and 17. The Board concentrated its efforts on the major factors which affect the economic, regulatory and political environment. The Board also paid particular attention to the importance of its close working relationship with the Manager, Livingbridge.
The Directors have also considered the Company's income and expenditure projections and find these to be realistic and sensible.
Based on the Company's processes for monitoring costs, share price discount, the Manager's compliance with the investment objective, policies and business model, asset allocation and the portfolio risk profile, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to 30 September 2020.
The Board of Baronsmead Second Venture Trust has the objective to maintain a minimum annual dividend level of around 4.5p per ordinary share if possible, but this depends primarily on the level of realisations achieved and cannot be guaranteed.
Since launch, the average annual tax free dividend paid to shareholders has been 7.6p per ordinary share.
The Board wishes to provide shareholders with a number of choices that enable them to utilise their investment in Baronsmead Second Venture Trust in ways that best suit their personal investment and tax planning and in a way that treats all shareholders equally.
On behalf of the Board Anthony Townsend Chairman
21 November 2017
The Chairman's Statement on pages 4 to 6, the Corporate Governance Statement on pages 25 to 32 and the Strategic Report on pages 2 to 21 forms part of the Report of the Directors.
As at 30 September 2017
| Anthony Townsend | Chairman |
|---|---|
| Appointed: | 4 August 2009 |
| Past experience | Anthony has over 40 years experience in financial services. He was previously a director of Rea Brothers Group plc, a non-executive director of Worldwide Healthcare Trust plc and was chairman of the Association of Investment Companies. |
| Other appointments | He is chairman of British & American Investment Trust plc, F&C Global Smaller Companies plc, Finsbury Growth & Income Trust plc, Miton Global Opportunities Trust plc and Gresham House Plc and a non-executive director of Hansa Capital Ltd. |
| Beneficial Shareholding 177,444 Ordinary Shares |
| Malcolm Groat | Audit and Risk Committee Chairman |
|---|---|
| Appointed: | 11 March 2016 |
| Past experience | Malcolm is a fellow of the Institute of Directors, the Institute of Chartered Accountants in England and Wales and the Royal Society for the encouragement of Arts, Manufactures and Commerce. During his career, Malcolm has worked as finance director for global businesses in engineering, construction and financial services. He has also served as chairman or non-executive director in a number of significant businesses. |
| Other appointments | He currently holds directorships at established companies Corps Security, Maritime House and Tekcapital plc, and at young ventures daVictus plc and Tomco Energy PLC. |
| Beneficial Shareholding 37,426 Ordinary Shares |
| Ian Orrock | Non-Executive Director |
|---|---|
| Appointed: | 21 October 2010 |
| Past experience | Ian has wide experience having founded, developed and sold a number of businesses particularly focussing on the international media, technology and telecoms sectors ("TMT"), and has worked at board level in quoted global organisations. He was also a non-executive director of Henderson Private Equity Investment Trust plc. |
| Other appointments | He is currently a director of a number of TMT businesses including Arkessa Limited, Iotic-Labs Ltd and Silchester Limited. |
| Beneficial Shareholding 41,430 Ordinary Shares |
| John Davies | Non-Executive Director |
|---|---|
| Appointed: | 30 November 2016 |
| Past experience | John was a director of BlackRock Smaller Companies Trust plc until his retirement in July 2011. He was managing director of 3i Asset Management Ltd (1985-2002) responsible for the management of three investment trusts and the group's quoted portfolio. He has extensive experience of smaller quoted companies, particularly where there have been private equity shareholders on flotation. John has a special interest in portfolio construction, the merits of investment vehicles and their risk profiles. |
| Other appointments | He is a director of Gardens Pension Trustees, a corporate trustee of the 3i Group Pension Scheme. He is also a member of the investment committee of the scheme. |
| Beneficial Shareholding 113,269 Ordinary Shares |
Audited Annual Report & Financial Statements for the year ended 30 September 2017
The Directors of Baronsmead Second Venture Trust plc (Reg: 04115341) present their Seventeenth Report and Audited Financial Statements of the Company for the year to 30 September 2017.
As a result of the reconstruction and winding up of Baronsmead VCT 5 plc, on 30 November 2016, the Company allotted 47,077,911 ordinary shares.
During the year, the Company bought back a total of 2,604,000 ordinary shares to be held in Treasury, representing 1.25 per cent of the issued share capital as at 30 September 2017, with an aggregate nominal value of £260,400. The total amount paid for these shares was £2.30m. The Company's remaining authority to buy back shares from the AGM held in 2017 is 18,884,696. During the year, there were no ordinary shares sold from Treasury.
Since the year end, on 26 October 2017, the Company allotted 13,797,365 new ordinary shares pursuant to the offer for subscription set out in the prospectus published on 4 October 2017. These new shares were allotted at a price of 97.60 pence per share, representing 6.19 per cent of the issued share capital following the allotment with an aggregate nominal value of £1.38m, raising a further £13.47m of new funds (before expenses).
A second allotment of shares pursuant to the prospectus published on 4 October 2017 took place on 17 November 2017. The Company allotted 7,350,154 new ordinary shares at a price of 97.10 pence per share, representing 3.19 per cent of the issued share capital following the allotment, with a nominal value of £0.74m, raising a further £7.14m of new funds (before expenses).
As at the date of this report the Company's issued share capital was as follows:
| Share | Total | % of Shares in issue |
Nominal Value |
|---|---|---|---|
| In issue | 230,185,440 | 100.00 £23,018,544.00 | |
| Held in Treasury | 11,693,214 | 5.08 | £1,169,321.40 |
| In circulation | 218,492,226 | 94.92 £21,849,222.60 |
The maximum number of shares held in Treasury during the year was 11,693,214. Shares will not be sold out of Treasury at a discount wider than the discount at which the shares were initially bought back by the Company.
Each 10p ordinary share entitles the holder to attend and vote at general meetings of the Company, to participate in the profits of the Company, to receive a copy of the Annual Report & Financial Statements and to a final distribution upon the winding up of the Company.
There are no restrictions on voting rights, no securities carry special rights and the Company is not aware of any agreement between holders of securities that result in restrictions on the transfer of securities or on voting rights. There are no agreements to which the Company is party that may affect its control following a takeover bid.
In addition to the powers provided to the Directors under UK company law and the Company's Articles of Association, at each AGM the shareholders are asked to authorise certain powers in relation to the issuing and purchasing of the Company's own shares. Details of the powers granted at the AGM held in 2017, all of which remain valid, can be found in the previous Notice of AGM.
The Board is not, and has not been throughout the year, aware of any beneficial interests exceeding 3 per cent of the total voting rights.
The Company has paid or declared the following dividends for the year to 30 September 2017:
| Dividends | £'000 |
|---|---|
| Interim dividend of 3.0p per ordinary share paid on 31 March 2017 |
5,987 |
| Final dividend of 4.5p per ordinary share to be paid on 2 February 2018 |
9,833 |
| Total dividends paid for the year | 15,820 |
Subject to shareholder approval at the AGM, a final dividend of 4.5p per share will be paid to shareholders on the register at 5 January 2018.
The notice of the AGM of the Company to be held at 11.00am on 30 January 2018 at Saddlers' Hall, 40 Gutter Lane, London EC2V 6BR will be sent to shareholders and will be available on the Company's website.
The rules concerning the appointment and replacement of Directors are contained in the Company's Articles of Association and the Companies Act 2006. Further details in relation to the appointed Directors and the governance arrangements of the Board can be found on page 22 and in the Corporate Governance Statement.
Directors are entitled to a payment in lieu of three months notice by the Company for loss of office in the event of a takeover bid.
Directors' and Officers' liability insurance cover is in place in respect of the Directors. The Company's Articles of Association provide, subject to the provisions of UK legislation, an indemnity for Directors in respect of costs which they may incur relating to the defence of any proceedings brought against them arising out of their positions as Directors, in which they are acquitted or judgement is given in their favour by the Court.
Save for such indemnity provisions in the Company's Articles of Association and in the Directors' letters of appointment, there are no qualifying third party indemnity provisions in force.
The Directors have declared any conflicts or potential conflicts of interest to the Board of Directors which has the authority to approve such situations. The Company Secretary maintains the Register of Directors' Conflicts of Interests which is reviewed quarterly by the Board, when changes are notified, and the Directors advise the Company Secretary and the Board as soon as they become aware of any conflicts of interest. Directors who have conflicts of interest do not take part in discussions which relate to any of their conflicts.
The Directors who held office at the date of approval of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's Auditor is unaware and each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company's Auditor is aware of that information.
After making enquires, and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. In arriving at this conclusion the Directors have considered the liquidity of the Company and its ability to meet obligations as they fall due for a period of at least twelve months from the date that these financial statements were approved. As at 30 September 2017, the Company held cash balances and investments in readily realisable securities with a value of £16.0m. Cash flow projections have been reviewed and show that the Company has sufficient funds to meet both its contracted expenditure and its discretionary cash outflows in the form of the share buyback programme and dividend policy. The Company has no external loan finance in place and therefore is not exposed to any gearing or covenants.
The Directors have chosen to include their report on global greenhouse emissions in the Strategic Report under the section on environmental, human rights, employee, social and community issues.
By Order of the Board Livingbridge VC LLP Secretary 100 Wood Street London EC2V 7AN
21 November 2017
This Corporate Governance statement forms part of the Report of the Directors
The Board has considered the principles and recommendations of the AIC Code by reference to the AIC Corporate Governance Guide for Investment Companies ("AIC Guide"). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Corporate Governance Code, as well as setting out additional principles and recommendations on issues that are of specific relevance to the Company.
The Board considers that reporting against the principles and recommendations of the AIC Code, and by reference to the AIC Guide (which incorporates the UK Corporate Governance Code), will provide better information to shareholders.
The Company has complied with the recommendations of the AIC Code and the relevant provisions of the UK Corporate Governance Code, except as set out below.
The UK Corporate Governance Code includes provisions relating to:
For the reasons set out in the AIC Guide, and as explained in the UK Corporate Governance Code, the Board considers these provisions are not relevant to the position of Baronsmead Second Venture Trust plc, being an externally managed investment company. In particular, all of the Company's day-to-day management and administrative functions are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations. The Company has therefore not reported further in respect of these provisions.
The tables on pages 25 to 29 provide an explanation of how the Company has complied with the AIC Code during the year and provide explanations where the Company has not complied.
| AIC Code |
Principle | Evidence of compliance and/or explanation of departure from the Code |
|---|---|---|
| 1 | The Chairman should be independent. |
The Board does not consider that Anthony Townsend has any conflict of interest that compromises his independence and the Company's independent directors (excluding the Chairman) have determined that he remains an independent director. |
| 2 | A majority of the board should be independent of the manager. |
All of the Directors' appointments are non-executive and, having considered the performance and independence of each Director, the Board has determined that each Director is independent in character and judgement and that there are no relationships or circumstances which are likely to affect their judgement or impair their independence. |
| As explained in the disclosure relating to AIC Code Provision 4, the Board does not believe that length of service has a bearing on independence and the nature of the Company's business is such that an individual director's experience and continuity of board membership can significantly enhance the effectiveness of the board as a whole. |
||
| 3 | Directors should be submitted for re-election at regular intervals. Nomination for re-election should not be assumed but be based on disclosed procedures and continued satisfactory performance. |
The Board has agreed that each Director will retire and, if appropriate, seek re-election annually, in line with best practice. Director performance is assessed during the annual Board evaluation process, as described below on page 31, prior to nomination for re-election. |
| AIC Code |
Principle | Evidence of compliance and/or explanation of departure from the Code |
|---|---|---|
| 4 | The board should have a policy on tenure, which is disclosed in the annual report. |
The Board does not believe that the tenure of a director on a wholly non-executive board has any direct bearing on their independence and, in common with many VCTs, the Board ensure that its membership includes longer-serving directors who provide a balance of knowledge and experience that is not present in the absence of executive directors. In addition, the average period for holding private equity investments is considerably longer than for other types of investment. As a result, the Nomination Committee considers the composition of the Board regularly and has determined that a formal policy on tenure would not be appropriate. |
| 5 | There should be full disclosure of information about the board. |
The Board is profiled on page 22 and biographies are available on the Company's website. Details of the Board's committees are set out from page 30. The recommendation of the AIC Code under Principle 5 states that the Chairman may be a member of, but not chair, the Remuneration Committee. Having taken account of the size of the Board and the remit of the Management Engagement and Remuneration Committee, which extends only to consideration of non-executive remuneration, the Board believes that Anthony Townsend remains the most suitable Director to chair the Committee. The Remuneration of the Chairman is considered by the Management Engagement and Remuneration Committee in his absence. |
| 6 | The board should aim to have a balance of skills, experience, length of service and knowledge of the Company. |
The profiles of each of the Directors are set out on page 22 and highlights their range of skills, experience, length of service and knowledge. The Board believes that diversity of experience and approach, including gender diversity, amongst board members is of great importance and the Board and its Nomination Committee give careful consideration to issues of board balance and diversity when considering the composition of the Board and making new appointments. As reported in the Nomination Committee report on pages 31 and 32, no changes to the composition of the Board were recommended in the year. |
| 7 | The board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors. |
As part of the merger process with Baronsmead VCT 5 plc, a review was undertaken that considered the performance and independence of each Director to ensure that the Board composition was appropriate and effective. Now that the Board has been in place for an entire year and as reported in the previous Annual Report and Accounts, the formal process of Board evaluation for the financial year has commenced. The Chairman is conducting individual performance review meetings with each of the Directors which centre on certain key themes, each designed to assess the strength of individual Directors, the Board and its Committees. The Directors will meet collectively to consider the output from the individual meetings. The performance of the Chairman is evaluated by the other Directors led by John Davies, the Senior Independent Director. |
| 8 | Director remuneration should reflect their duties, responsibilities and the value of their time spent. |
The Board's Management Engagement and Remuneration Committee considers at least annually the level of the Board's fees, in accordance with the Remuneration Policy approved by shareholders at the AGM held in 2017. Further details on the Directors' remuneration is contained in the Directors' Remuneration Report on pages 33 to 37. |
| AIC Code |
Principle | Evidence of compliance and/or explanation of departure from the Code |
|---|---|---|
| 9 | The independent directors should take the lead in the appointment of new directors and the process should be disclosed in the annual report. |
The Nomination Committee, which is comprised entirely of independent directors, is responsible for overseeing the recruitment of new directors. Potential candidates are identified through either the appointment of a recruitment consultant or the Board's/Manager's knowledge of available individuals. |
| 10 | Directors should be offered relevant training and induction. |
New Directors are provided with an induction pack containing key information and governance documents relating to the Company when they are appointed. In addition, they are offered a tailored induction programme with the Manager which covers the investment portfolio and the Manager's approach to investment. Directors receive detailed updates on market and regulatory developments and are provided periodically with training to enhance and refresh their knowledge. |
| 11 | The chairman (and the board) should be brought into the process of structuring a new launch at an early stage. |
Principle 11 applies to the launch of new investment companies and is therefore not applicable to the Company. |
| 12 | Boards and managers should operate in a supportive, co-operative and open environment. |
Formal Board meetings provide important forums for the Directors and key members of the Manager's team to interact and for Directors to receive reports and provide challenge to the Manager but interaction between the Board and the Manager is not restricted to these meetings. Between meetings, the Manager continuously updates the Board on developments and responds to queries and requests by Directors as they arise. Informal meetings take place regularly between the Directors and the Manager and senior members of the Manager's team are also invited to the Board's annual strategy meeting. |
| 13 | The primary focus at regular board meetings should be a review of investment performance and associated matters, such as gearing, asset allocation, marketing/investor relations, peer group information and industry issues. |
At each quarterly meeting, the Board receives a report on the performance of the Company, its investments and the VCT sector (including competitors). The report also outlines compliance with the 70 per cent test and includes forecasts for future periods, highlighting investment opportunities, operational matters and regulatory developments that will/may impact upon the Manager's management of the investment portfolio. The Board has agreed with the Manager specific KPIs that enable both parties to monitor compliance with the agreed Investment Policy and Risk Management framework. Directors regularly seek additional information from the Manager to supplement these reports and formally review the performance measures and KPIs at their annual strategy meeting. |
| 14 | Boards should give sufficient attention to overall strategy. |
The Board monitors performance against its agreed strategy on an ongoing basis and reviews its overall strategy, including the viability of the Company in its current form, at its annual strategy meeting. |
| AIC Code |
Principle | Evidence of compliance and/or explanation of departure from the Code |
|---|---|---|
| 15 | The board should regularly review both the performance of, and contractual arrangements with, the manager (or executives of |
The Management Engagement and Remuneration Committee reviews the overall performance of the Manager annually and considers both the appropriateness of the Manager's appointment and the contractual arrangements (including the structure and level of remuneration) with the Manager. |
| a self-managed fund). | The Board believe that the Manager's track record in the VCT sector remains outstanding and that its ability to continue to achieve strong results by adapting to an ever changing regulatory environment has been particularly impressive. As a result, the Board has concluded that the continuing appointment of Livingbridge VC LLP remains in the best interest of shareholders as a whole. |
|
| 16 | The board should agree policies with the manager covering key operational issues. |
Certain matters, including strategy, investment and dividend policies, gearing, and corporate governance procedures, are reserved for the approval of the Board. Under the terms of management agreement, the Board has delegated the management of the investment portfolio to the Manager. The management agreement sets out the matters over which the Manager has authority and the limits above which Board approval must be sought. |
| The Manager also provides or procures the provision of company secretarial, accounting, administrative and custodian services to the Company. |
||
| In the absence of explicit instructions from the Board, the Manager is empowered to exercise discretion in the use of the Company's voting rights. All shareholdings are voted, where practicable, in accordance with the Manager's own corporate governance policy, which is to seek to maximise shareholder value by constructive use of votes at company meetings and by endeavouring to use its influence as an investor with a principal approach to corporate governance. |
||
| The Board has considered the adequacy of arrangements by which staff of the Manager or Secretary of the Company may, in confidence, raise concerns within their respective organisations about possible improprieties in matters of financial reporting or other matters. It has concluded that adequate arrangements are in place for the proportionate and independent investigation of such matters and, where necessary, for appropriate follow-up action to be taken within their organisation. |
||
| 17 | Boards should monitor the level of the share price discount or premium (if any) and, if desirable, take action to reduce it. |
The Company has stated its aim to seek a mid-share price discount to NAV of no more than 5 per cent, but keeps the share price discount policy under continuous review. The performance of the Company's share price and the discount to NAV is monitored continuously and shares will be bought back depending on market conditions at the time and only where the Directors believe it to be in the best interests of all shareholders. |
| AIC Code |
Principle | Evidence of compliance and/or explanation of departure from the Code |
|---|---|---|
| 18 | The board should monitor and evaluate other service providers. |
The Board has established a framework for monitoring and evaluating the performance of its third party services providers and, on the Company's behalf, the Manager monitors the performance and systems and controls employed by the service providers. The Audit Committee receives service provider control reports from the Manager and the Board considers if a provider should be replaced. |
| 19 | The board should regularly monitor the shareholder profile of the company and put in place a system for canvassing shareholder views for communicating the board's view to shareholders |
As a VCT, the Company's share register is made up almost entirely of retail shareholders and the Board, through the Manager, remains in constant engagement with wealth managers and brokers to inform their understanding of its investor base. The Company's Annual Report & Financial Statements provides the Board with an opportunity to report on the performance and outlook for the Company and to update shareholders on developments. At the AGM shareholders have an opportunity to receive more detailed presentations from the Manager on specific investments and it also provides a forum to speak directly to the Directors and members of the Manager's team. The Directors welcome the views of shareholders and are happy to correspond directly with shareholders or make themselves available to meet shareholders. Shareholders seeking to communicate with the Board should contact the Manager in the first instance (see page 69 for contact details). The AGM held in 2017 was held on 23 March 2017. The Company provided 21 days' notice, in accordance with the Companies Act 2006 and 20 working days' notice, as required under the AIC Code. |
| 20 | The board should normally take responsibility for, and have direct involvement in, the content of communications regarding major corporate issues even if the manager is asked to act as spokesman. |
The Board takes responsibility for approving the content and timing of communications regarding major corporate issues. Communications usually take the form of stock exchange announcements, press releases and direct correspondence with shareholders and the Board seeks the advice and guidance of the Manager when drafting such communications. |
| 21 | The board should ensure that shareholders are provided with sufficient information for them to understand the risk/reward balance to which they are exposed by holding the shares. |
The Company's annual report is drafted to provide shareholders with sufficient information to understand the nature of their investment in the Company. The format and content of the annual report is updated each year in response to changes in best practice and to improve the quality of the information available to shareholders. Details of the Company's full portfolio as at 30 September 2017 can be found on the Company's website and on pages 65 and 66. Under the AIC Code the Company must provide an explanation regarding the prospects of the Company over a period of more than 12 months. The Company's viability statement can be found on pages 20 and 21. |
The Board has delegated certain responsibilities to its Audit & Risk, Management Engagement & Remuneration and Nomination Committees. Given the size and nature of the Board it is felt appropriate that all Directors are members of the Committees. The Board has established formal terms of reference for each of the Committees which are available from the Company Secretary upon request. An outline of the remit of each of the Committees and their activities during the year are set out in the below table:
As an outcome of the shortening of the previous accounting period and the completion of the merger with Baronsmead VCT 5 plc, the Committee has spent considerable time reviewing the content and integrity of the Half-Yearly Report and these Financial Statements to ensure that the presentation of results is clear and comparable for our shareholders.
During the year and as part of the audit strategy presentation by KPMG, the Committee discussed the valuation approach in respect of unlisted investments and the degree of judgement that was adopted as part of this process. KPMG provided a clear description of the work they undertook as part of the audit process to review these valuations and requested further reporting from KPMG to provide us with additional comfort that these valuations were challenged appropriately.
The Committee reviewed these Financial Statements and although it did not identify any significant issues, it paid particular attention to:
● The valuation of unquoted investments: the Manager and external auditor confirmed that the investment valuations had been performed consistently with prior years and in accordance with published industry guidelines, taking account of the latest available information about investee companies and current market data. The Directors had met quarterly to assess the estimates and judgements made by the Manager in the valuations for their appropriateness.
Given the quantum of quoted investments, making up a significant portion of the Company's total assets, the Directors assessed the Manager's approach to valuation. The Manager and external auditor confirmed that such investments comprise liquid, quoted investments, the valuation of which is obtained from externally quoted prices.
During the year we decided to change our VCT Status advisors from Phillip Hare & Associates LLP to PwC. PwC are very well respected within the VCT industry and have regular contact with HMT regarding changes.
As described in Anthony's Chairman's Statement, the VCT industry is once again bracing itself for more changes to our legislative landscape. However, it is not just future changes that have been part of the Committee's considerations. As of 3 January 2018, the Company will be subject to MiFID II regulation due to the Manager being a MIFID firm. The Committee has been working with the Manager to ensure compliance with the new legislation ahead of the implementation date.
The Committee oversees the operation of the Company's risk management and internal control systems. Procedures have been designed to identify and manage, rather than eliminate, risk. These procedures involve the maintenance of a risk register which records the risks to which the Company is exposed, including, among others, market, investment, operational and regulatory risks, and the controls employed to mitigate these risks. The residual risks are rated taking into account the impact of the mitigating factors. We identify changes and update the register as required and review this register at each Committee meeting. Where necessary, we also ensure that corrective action is taken. We carried out a formal review of the effectiveness of the risk management and internal control systems during the year and concluded that there is an on-going process for identifying, evaluating and managing the principal risks of the Company, that the systems have been in place throughout the year under review and up to the date of approval of these accounts and that the processes are reviewed regularly by the Board.
The Committee receives a Service Provider Control Report from the Manager that provides an overview of the main risks identified by our third party service providers and the mitigating actions put in place for these. We believe this process provides additional rigour to the Committee's oversight and review of internal control and risk management processes.
The Committee also reviewed the need for an internal audit function. We concluded that the systems and procedures employed by the Manager provide sufficient assurance that a sound system of internal control, which safeguards shareholders' investment and the Company's assets, is maintained. We therefore believe that an internal audit function, specific to the Company, is not currently required.
Under the Competition and Markets Authority regulations, the Company is required to carry out an audit tender every ten years and mandatory rotation at least every 20 years. As reported in last year's report, in November 2016, the Company conducted a full audit tender process. As KPMG have only been in office for 11 years and would only be required to retire following the 2026 audit, the auditor was able to participate in the tender process. In accordance with professional guidelines the senior statutory auditor is rotated after at most five years, and the current senior statutory audit partner started working with the Company in 2016.
Each firm was considered to offer extensive experience of VCTs, together with accounting, tax and financial reporting and governance expertise. Out of the three invited to the tender, only two of the audit firms presented to the Committee. The conclusion of this process was that KPMG be reappointed.
The Committee expects to repeat a tender process in 2026 in respect of the audit for the year ended 30 September 2027, in line with the latest Corporate Governance provisions and EU Requirements.
Following the implementation of the EU Audit Directive and in accordance with the FRC's Guidance on Audit Committees, the Committee approved a non-audit services policy to ensure that the auditor's independence and objectivity was not impaired. The policy outlines those services that the external auditor is prohibited from providing as well as those that require pre-approval from the Committee. The Committee carefully considered the independence of KPMG and were satisfied that there was a clear division between audit and non-audit services and the implementation of this policy will ensure that this division is maintained going forward. The Committee continues to believe that the value of non-audit services provided by KPMG, as reported on page 54, does not represent a conflict of interest.
Following a review of the effectiveness of the audit, the Committee was satisfied that KPMG had continued to carry out its duties in a diligent and professional manner maintained a good knowledge of the VCT market and continued to provide a high level of service. A resolution to re-appoint KPMG as the Company's Auditor will be put to shareholders at the forthcoming AGM.
Looking ahead to the work that will be undertaken by the Committee in the next financial year, we will continue to work with our advisors to continue to understand the current impact of the legislative changes to ensure full compliance and that our policies in place provide the necessary comfort.
A summary of this Committee's key responsibilities and activities carried out during the year can be found in the Remuneration Report on page 33.
During the year we reviewed the composition of the Board and Committees, including the chairmanship of each Committee. We also considered the outcome of the review following the completion of the merger with Baronsmead VCT 5 plc. Our opinion remains that we are satisfied with the performance of the Board, its sub-committees and that of individual Directors and the Chairman.
In accordance with the Articles of Association and best practice, all Directors will be submitted for re-election on an annual basis.
The below table sets out the Directors' attendance at Board and Committee meetings held during the year ended 30 September 2017. In addition, the Board established committees to approve financial statements and the payment of dividends. Other ad-hoc meetings were held as required. The Directors also attended quarterly meetings to consider in detail the valuations of the unquoted investments in the portfolio.
| Board of Directors | Audit Committee | Management Engagement and Remuneration Committee |
Nomination Committee | |||||
|---|---|---|---|---|---|---|---|---|
| Eligible | Attended | Eligible | Attended | Eligible | Attended | Eligible | Attended | |
| Anthony Townsend | 4 | 4 | 2 | 2 | 2 | 2 | 1 | 1 |
| John Davies^ | 3 | 3 | 1 | 1 | 1 | 1 | 0 | 0 |
| Ian Orrock | 4 | 4 | 2 | 2 | 2 | 2 | 1 | 1 |
| Robert Owen* | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Malcolm Groat | 4 | 4 | 2 | 2 | 2 | 2 | 1 | 1 |
* Resigned on 13 October 2016.
^ Appointed on 30 November 2016.
Audited Annual Report & Financial Statements for the year ended 30 September 2017
The Board has prepared this report in accordance with the requirements of the Large and Medium Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013.
The law requires the Company's auditor, KPMG, to audit certain of the disclosures provided. Where disclosures have been audited, they are indicated as such. The auditor's opinion is included in the 'Independent Auditor's Report' on pages 39 to 44.
An Ordinary resolution for the approval of this report will be put to the members at the forthcoming AGM.
The Management Engagement and Remuneration Committee is chaired by Mr Townsend and comprises all the Directors of the Company. The Company has no executive Directors, and considers all the non-Executive Directors to be independent. The Management Engagement and Remuneration Committee's key responsibilities are:
Each year the Committee reviews the Directors' fees to make sure they are in line with others in the VCT industry, so that the Board can attract suitably qualified candidates to the Board. In addition, they have regard to the workload that individual directors and the Chairman undertake as members of the Board. In recent years the Board has seen a significant increase in regulation in the industry which has, in turn, resulted in an increase in the workload of the Directors. This trend of ever increasing regulation seems set to continue. In addition, the Directors spend a considerable amount of time monitoring the 70 per cent test, the other continuing VCT tests, and the co-investment scheme. They are also responsible for monitoring
the key risks to the Company and for scrutiny of all costs. The Directors set the strategy for the Company's continuing success and decide when fundraising is appropriate. They then monitor the performance of the Company against the strategic objectives set.
Directors spend further time preparing for Board meetings, and the quarterly valuation meetings (at which a rigorous review of the unquoted investee companies is undertaken so as to arrive at the appropriate valuation) as well as a number of other ad hoc meetings. This work is in addition to the time taken up in the formal meetings of the Board.
Further details of the responsibilities of the Directors are provided in the Corporate Governance Statement on pages 25 to 29, all of which the Board believes should be taken into account when determining the remuneration of the Directors.
Given the merger of the Company and Baronsmead VCT5 plc during the financial year, the Management Engagement and Remuneration Committee agreed that there would be no increase in respect of Director fees for the year ended 30 September 2017, but that this would be reviewed again once the merger had completed and the new Board had settled into their roles.
In determining the remuneration of the Directors, the Company has regard inter alia, to the time spent by the Directors on matters concerning the Company, the comparative fees paid to Directors of other VCTs relative to the NAV of the VCT, the prevailing rate of Consumer Price Index ("CPI") at the time and the performance of the Company's portfolio. The Management Engagement and Remuneration Committee considered the level of Directors' fees for the year ending 30 September 2018 and concluded that, having regard for the increased amount and quality of work that Directors would be required to undertake, it was appropriate to increase the Director's fees. Accordingly the Directors' fees were increased from £22,000 to £27,000, the Audit Chairman's fee from £24,000 to £29,000 and the Chairman's fee was increased from £29,500 to £35,000. These changes were effective from 1 October 2017.
The Board's policy is that the remuneration of non-executive Directors should reflect the experience of the Board as a whole, be fair and comparable to that of other relevant venture capital trusts that are similar in size Furthermore, the level of remuneration should be sufficient to attract and retain the Directors needed to oversee properly the Company and to reflect the specific responsibilities of the Directors and the value and amount
The remuneration policy was approved by the members at the AGM held in 2017. There are no proposed changes to the policy and therefore it is intended that this policy will continue for the year ending 30 September 2018 and subsequent years. In accordance with the regulations, an ordinary resolution to approve the directors' remuneration policy will be put to shareholders at least once every three years.
The Directors are not eligible to receive pension entitlements, bonuses and no other benefits are provided. They are not entitled to participate in any long-term incentive plan or share option schemes. Fees are paid to the Directors on a monthly basis and are not performance related.
The Directors do not have service contracts; however their appointment letters do include a three month notice period. As a result, the Company's policy on termination payments is for a payment of three months in lieu for Directors that are not requested to work their notice period.
Shareholders' views in respect of Directors' remuneration are communicated at the Company's AGM and are taken into account in formulating the Directors remuneration policy. At the last AGM, over 95 per cent of shareholders voted for the resolution approving the Directors Remuneration Report (4 per cent) against and over 94 per cent voted for the resolution to approve the remuneration policy (5 per cent against), showing significant shareholder support.
The terms of Directors' appointments, as set out in their appointment letters, provide that Directors should retire and be subject to election at the first Annual General Meeting after their appointment. As per the Company's Articles of Association, the Directors are thereafter obliged to retire by rotation, and to offer themselves for re-election by shareholders at least every three years after that. As agreed previously by the Nomination Committee, all Directors will submit themselves for annual re-election, in line with best practice.
The Board is responsible for the Company's investment strategy and performance, although the management of the Company's investment portfolio is delegated to the Manager through the management agreement, as referred to in the 'Report of the Directors'. The graph overleaf compares, for the ten periods, the percentage change over each period in the share price total return (assuming all dividends are reinvested) to shareholders compared to the share price total return of approximately 41 generalist VCTs (source FE Analytics), which the Board considers to be the most appropriate benchmark for investment performance measurement purposes. An explanation of the performance of the Company is given in the Chairman's Statement and Manager's Review.
Once a year the Management Engagement and Remuneration Committee formally reviews the performance of the Manager and the appropriateness of its continuing appointment. At this meeting they review the performance of the fund and all aspects of the service provided by the Manager. They also review the terms and conditions of the appointment, including the level of the Manager's fees.
Directors' emoluments for the year (audited)
The Directors who served in the year received the following emoluments in the form of fees:
| Year to 30 September 2017 Fees £ |
Nine months to 30 September 2016 Fees £ |
|
|---|---|---|
| Anthony Townsend (Chairman) | 29,500 | 22,100 |
| Andrew Karney* | – | 9,800 |
| Gillian Nott* | – | 10,700 |
| Ian Orrock | 22,000 | 16,500 |
| Robert Owen‡ | 6,300 | 13,000 |
| Malcolm Groat^ | 24,000 | 13,900 |
| John Davies† | 18,300 | – |
| Total | 100,100 | 86,000 |
* Resigned on 11 March 2016. Fees for 2016 include ex-gratia payments equivalent to three months fees (Andrew Karney: £5,500; Gillian Nott: £6,000) in recognition of their contribution to the development of the Company.
‡ Appointed on 11 March 2016, resigned on 13 October 2016. Fees include ex-gratia payment equivalent to three months fees (£5,500) in recognition of his contribution to the development of Baronsmead VCT4 plc.
^ Appointed on 11 March 2016.
† Appointed 30 November 2016.
The below table is required to be included in accordance with The Large and Medium Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2008. It should be noted that the figures below are not directly comparable due to:
| Year to 30 September 2017 £ |
Nine months to 30 September 2016 £ |
Percentage change |
|
|---|---|---|---|
| Dividend paid during the period | 5,987,000 | 25,695,000 | (76.7) |
| Total directors fees | 100,100 | 86,000 | 16.4 |
The interests of the Directors in the shares of the Company, at the beginning and at the end of the year, or date of appointment, if later, were as follows:
| 30 September | 30 September | |
|---|---|---|
| 2017 Ordinary |
2016 Ordinary |
|
| 10p shares | 10p shares | |
| Anthony Townsend (Chairman) | 177,444 | 177,444 |
| Ian Orrock | 41,430 | 41,430 |
| Malcolm Groat^ | 37,426 | 37,426 |
| John Davies* | 113,269 | n/a |
| Total | 369,569 | 256,300 |
^ appointed on 11 March 2016.
* appointed on 30 November 2016.
The changes in the holdings of the Directors between 30 September 2017 and 20 November 2017, following their participation in the fundraising, were as follows:
| 20 November | 30 September | |
|---|---|---|
| 2017 | 2017 | |
| Ordinary | Ordinary | |
| 10p shares | 10p shares | |
| Anthony Townsend (Chairman) | 197,935 | 177,444 |
| Ian Orrock | 51,675 | 41,430 |
| Malcolm Groat | 80,458 | 37,426 |
| John Davies | 133,760 | 113,269 |
| Total | 463,828 | 369,569 |
Approved by the Board of Directors and signed by:
Chairman of the Management Engagement and Remuneration Committee
21 November 2017
The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK Accounting Standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.
Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
We confirm that to the best of our knowledge:
We consider the annual report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
21 November 2017
We have audited the financial statements of Baronsmead Second Venture Trust plc ("the Company") for the year ended 30 September 2017 which comprise the Income Statement, Balance Sheet, Statement of Changes in Equity, Statement of Cash Flows and the related explanatory notes.
In our opinion the financial statements:
We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the audit committee.
We were appointed as auditor by the shareholders on 23 March 2005. The period of total uninterrupted engagement is the 13 years ended 30 September 2017. We have fulfilled our ethical responsibilities under, and we remain independent of the Company in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services prohibited by that standard were provided.
financial whole
Materiality: £1.88m (2016:£1.42m) statements as a 1% (2016: 1%) of total assets
Recurring risks Carrying value of quoted investments Valuation of
unquoted investments
www.baronsmeadvcts.co.uk 39
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarise below the key audit matters (unchanged from 2016), in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit procedures to address those matters and, as required for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.
(£62.8 million; 2016: £49.3 million) Refer to page 30 (Audit Committee Report), page 50 (accounting policy) and pages 50 and 51 (financial disclosures).
33% of the Company's total assets (by value) is held in investments where no quoted market price is available. Unquoted investments are measured at fair value, which is established in accordance with the International Private Equity and Venture Capital Valuation Guidelines by using measurements of value such as prices of recent orderly transactions, earnings multiples and net assets. There is a significant risk over the valuation of these investments.
Our procedures included:
| The risk | Our response |
|---|---|
| We challenged the assumptions around sustainability of earnings based on the plans of the investee companies and whether these are achievable and we obtained an understanding of existing and prospective investee company cash flows to understand whether borrowings can be serviced or whether refinancing may be required. Our work included consideration of events which occurred subsequent to the year end up until the date of this audit report; |
|
| — Comparing valuations: Where a recent transaction (multiple) has been used to value a holding, we obtained an understanding of the circumstances surrounding the transaction and whether it was considered to be on an arms-length basis and suitable as an input into a valuation. |
|
| — Assessing transparency: Consideration of the appropriateness, in accordance with relevant accounting standards, of the disclosures in respect of unquoted investments and the effect of changing one or more inputs to reasonably possible alternative valuation assumptions. |
|
| Our results | |
| — We found the resulting valuation of unquoted investments to be acceptable (2016: acceptable). |
|
| Low risk, high value The Company's portfolio of quoted investments makes up 67% of the company's total assets (by value) and is results. We do not consider these investments to be at a high risk of significant misstatement, or to be subject to a comprise liquid, quoted investments. However, due to their materiality in the context of the financial statements as a whole, they are considered to be one of audit. |
Our procedures included: — Tests of detail: Agreeing the valuation of 100 per cent of investments in the portfolio to externally quoted prices; and — Enquiry of custodians: Agreeing 100 per cent of investment holdings in the portfolio to independently received third party confirmations from investment custodians. Our results — We found the resulting carrying amount of quoted investments to be acceptable (2016: acceptable). |
| considered to be one of the key drivers of significant level of judgment because they the areas which had the greatest effect on our overall audit strategy and allocation of resources in planning and completing our |
Materiality for the financial statements as a whole was set at £1.88m (2016: £1.42m), determined with reference to a benchmark of total assets, of which it represents 1% (2016: 1%).
We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £94k (2016: £71k), in addition to other identified misstatements that warranted reporting on qualitative grounds.
Our audit of the Company was undertaken to the materiality level specified above and was performed at the administrator's office in Exeter and the investment manager's office in London.
We are required to report to you if:
We have nothing to report in these respects.
The directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information.
Based solely on our work on the other information:
In our opinion the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.
Based on the knowledge we acquired during our financial statements audit, we have nothing material to add or draw attention to in relation to:
Under the Listing Rules we are required to review the Viability Statement. We have nothing to report in this respect.
We are required to report to you if:
We are required to report to you if the Corporate Governance Statement does not properly disclose a departure from the eleven provisions of the UK Corporate Governance Code specified by the Listing Rules for our review.
We have nothing to report in these respects.
Under the Companies Act 2006, we are required to report to you if, in our opinion:
We have nothing to report in these respects.
As explained more fully in their statement set out on page 38, the directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud, other irregularities, or error, and to issue our opinion in an auditor's report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud, other irregularities or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. The risk of not detecting a material misstatement resulting from fraud or other irregularities is higher than for one resulting from error, as they may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control and may involve any area of law and regulation not just those directly affecting the financial statements.
A fuller description of our responsibilities is provided on the FRC's website at www.frc.org.uk/auditorsresponsibilities.
This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed.
Saltire Court 20 Castle Terrace Edinburgh EH1 2EG
21 November 2017
For the year ended 30 September 2017
| Year ended 30 September 2017 |
Period ended 30 September 2016 |
||||||
|---|---|---|---|---|---|---|---|
| Notes | Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
| Unrealised gains on movements in fair value | |||||||
| of investments | 2.3 | – | 12,987 | 12,987 | – | 5,920 | 5,920 |
| Realised gains on disposal of investments | 2.3 | – | 251 | 251 | – | 2,216 | 2,216 |
| Income | 2.5 | 3,119 | – | 3,119 | 1,221 | – | 1,221 |
| Investment management fee | 2.6 | (1,092) | (3,276) | (4,368) | (616) | (1,847) | (2,463) |
| Other expenses | 2.6 | (832) | – | (832) | (810) | – | (810) |
| Profit/(loss) before taxation | 1,195 | 9,962 | 11,157 | (205) | 6,289 | 6,084 | |
| Taxation | 2.9 | – | – | – | – | – | – |
| Profit/(loss) for the year, being total | |||||||
| comprehensive income for the year | 1,195 | 9,962 | 11,157 | (205) | 6,289 | 6,084 | |
| Return per ordinary share: | |||||||
| Basic and Diluted | 2.2 | 0.63p | 5.20p | 5.83p | (0.16p) | 4.83p | 4.67p |
All items in the above statement derive from continuing operations.
There are no recognised gains and losses other than those disclosed in the Income Statement.
The revenue column of the Income Statement includes all income and expenses. The capital column accounts for the realised and unrealised profit or loss on investments and the proportion of the management fee charged to capital.
The total column of this statement is the Statement of Total Comprehensive Income of the Company prepared in accordance with Financial Reporting Standards ("FRS"). The supplementary revenue return and capital return columns are prepared in accordance with the Statement of Recommended Practice issued in November 2014 and updated in January 2017 by the Association of Investment Companies ("AIC SORP").
For the year ended 30 September 2017
| Non-distributable reserves | Distributable Reserves | |||||
|---|---|---|---|---|---|---|
| Notes | Called-up share capital £'000 |
premium £'000 |
Share Revaluation reserve £'000 |
Capital reserve £'000 |
Revenue reserve £'000 |
Total £'000 |
| At 1 October 2016 | 16,196 | 81,466 | 24,357 | 18,394 | 495 | 140,908 |
| Shares issued following the acquisition of Baronsmead VCT5 plc |
4,708 | 38,245 | – | – | – | 42,953 |
| Cancellation of share premium | – | (119,711) | – | 119,711 | – | – |
| Share premium cancellation costs | – | – | – | (29) | – | (29) |
| Profit/(loss) after taxation | – | – | 14,055 | (4,093) | 1,195 | 11,157 |
| Net cost of share buybacks | – | – | – | (2,313) | – | (2,313) |
| Dividends paid 2.4 |
– | – | – | (5,887) | (100) | (5,987) |
| At 30 September 2017 | 20,904 | – | 38,412 | 125,783 | 1,590 | 186,689 |
For the period ended 30 September 2016
| Non-distributable reserves | Distributable Reserves | ||||||
|---|---|---|---|---|---|---|---|
| Notes | Called-up share capital £'000 |
Share premium £'000 |
Revaluation reserve £'000 |
Capital reserve £'000 |
Revenue reserve £'000 |
Total £'000 |
|
| At 1 January 2016 | 8,463 | 8,815 | 15,460 | 45,758 | 700 | 79,196 | |
| Shares issued following the acquisition of Baronsmead VCT4 plc |
6,800 | 63,884 | – | – | – | 70,684 | |
| Profit/(loss) after taxation | – | – | 8,897 | (2,608) | (205) | 6,084 | |
| Net proceeds of share issues, share buybacks & sale of shares from |
|||||||
| treasury | 933 | 8,767 | – | 939 | – | 10,639 | |
| Dividends paid | 2.4 | – | – | – | (25,695) | – | (25,695) |
| At 30 September 2016 | 16,196 | 81,466 | 24,357 | 18,394 | 495 | 140,908 |
As at 30 September 2017
Company Number: 04115341
| Notes | 30 September | As at 2017 £'000 |
As at 30 September 2016 £'000 |
|---|---|---|---|
| Fixed assets Investments 2.3 |
187,364 | 116,579 | |
| Current assets Debtors 2.7 Cash at bank |
260 515 |
1,464 24,110 |
|
| Creditors (amounts falling due within one year) 2.8 |
775 (1,450) |
25,574 (1,245) |
|
| Net current (liabilities)/assets | (675) | 24,329 | |
| Net assets | 186,689 | 140,908 | |
| Capital and reserves Called-up share capital 3.1 Share premium 3.2 Capital reserve 3.2 Revaluation reserve 3.2 |
20,904 – 125,783 38,412 |
16,196 81,466 18,394 24,357 |
|
| Revenue reserve 3.2 |
1,590 | 495 | |
| Equity shareholders' funds 2.1 |
186,689 | 140,908 | |
| NAV per share – Basic 2.1 – Treasury 2.1 |
94.60p 94.31p |
92.17p 91.89p |
The financial statements were approved by the board of Directors of Baronsmead Second Venture Trust plc on 21 November 2017 and were signed on its behalf by:
Anthony Townsend
Chairman
For the year ended 30 September 2017
| Year ended 30 September 2017 £'000 |
Period ended 30 September 2016 £'000 |
|
|---|---|---|
| Cash flows from operating activities Investment income received Deposit interest received |
3,068 7 |
1,757 59 |
| Investment management fees paid Other cash payments Merger costs paid |
(4,249) (525) (455) |
(2,371) (444) (157) |
| Net cash outflow from operating activities | (2,154) | (1,156) |
| Cash flows from investing activities Purchases of investments Disposals of investments |
(43,015) 24,606 |
(28,999) 39,739 |
| Net cash (outflow)/inflow from investing activities | (18,409) | 10,740 |
| Equity dividends paid | (5,987) | (25,695) |
| Net cash outflow before financing activities | (26,550) | (16,111) |
| Cash flows from financing activities Net (costs)/proceeds of share issues, share buybacks & sale of shares from treasury Net proceeds received from merger Share premium cancellation costs |
(1,048) 4,008 (5) |
9,378 19,539 – |
| Net cash inflow from financing activities | 2,955 | 28,917 |
| (Decrease)/increase in cash | (23,595) | 12,806 |
| Reconciliation of net cash flow to movement in net cash (Decrease)/increase in cash Opening cash position |
(23,595) 24,110 |
12,806 11,304 |
| Closing cash at bank and on deposit | 515 | 24,110 |
| Reconciliation of profit before taxation to net cash outflow from operating activities |
||
| Profit before taxation Gains on investments (Increase)/decrease in debtors Increase in creditors Written off expenses from merger |
11,157 (13,238) (57) 169 (185) |
6,084 (8,136) 448 635 (187) |
| Net cash outflow from operating activities | (2,154) | (1,156) |
We have grouped notes into sections under three key categories:
The key accounting policies have been incorporated throughout the notes to the Financial Statements adjacent to the disclosure to which they relate. All accounting policies are included within an outlined box.
These Financial Statements have been prepared under FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and in accordance with the Statement of Recommended Practice ("SORP") for investment trust companies and venture capital trusts issued by the Association of Investment Companies ("AIC") in November 2014 and updated in January 2017 and on the assumptions that the Company maintains VCT status.
The application of the Company's accounting policies requires judgement, estimation and assumptions about the carrying amount of assets and liabilities. These estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The key source of estimation uncertainty relates to the assumptions made in the determination of the fair value of the unquoted investments as set out in note 2.3.
The Financial Statements have been prepared on a going concern basis, under historical cost convention. The functional currency in which the Company operates is Sterling.
| Number of ordinary shares |
Net asset value per share attributable |
Net asset value attributable |
||||
|---|---|---|---|---|---|---|
| 30 September 2017 number |
30 September 2016 number |
30 September 2017 pence |
30 September 2016 pence |
30 September 2017 £'000 |
30 September 2016 £'000 |
|
| Ordinary shares (basic) |
197,344,707 | 152,870,796 | 94.60 | 92.17 | 186,689 | 140,908 |
| Ordinary shares (including treasury) |
209,037,921 | 161,960,010 | 94.31 | 91.89 | 197,154 | 148,827 |
The treasury NAV per share as at 30 September 2017 has been calculated by assuming that all shares held in treasury were sold to the market at the mid-share price of 89.50p at 30 September 2017 (2016: 87.13p).
| Return per ordinary share |
Weighted average number of ordinary shares Net profit after taxation |
|||||||
|---|---|---|---|---|---|---|---|---|
| 30 September | 30 September | 30 September | 30 September | 30 September | 30 September | |||
| 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||
| number | number | pence | pence | £'000 | £'000 | |||
| Revenue | 191,452,309 | 130,242,740 | 0.63 | (0.16) | 1,195 | (205) | ||
| Capital | 191,452,309 | 130,242,740 | 5.20 | 4.83 | 9,962 | 6,289 | ||
| Total | 5.83 | 4.67 | 11,157 | 6,084 |
The Company has fully adopted sections 11 and 12 of FRS 102.
Purchases or sales of investments are recognised at the date of transaction.
Investments are measured at fair value. For AIM-traded securities this is either bid price or the last traded price, depending on the convention of the exchange on which the investment is traded.
In respect of collective investment vehicles, which consists of investments in open ended investment companies authorised in the UK, this is the closing price.
In respect of unquoted investments, these are valued at fair value by the Directors using methodology which is consistent with the International Private Equity and Venture Capital Valuation guidelines ("IPEV"). This means investments are valued using an earnings multiple, which has a discount or premium applied which adjusts for points of difference to appropriate stock market or comparable transaction multiples. Alternative methods of valuation will include application of an arm's length third party valuation, a provision on cost or a NAV basis.
Gains and losses arising from changes in the fair value of the investments are included in the Income Statement for the year as a capital item. Transaction costs on acquisition are included within the initial recognition and the profit or loss on disposal is calculated net of transaction costs on disposal.
All investments are initially recognised and subsequently measured at fair value. Changes in fair value are recognised in the Income Statement. The details of which are set out in the box above.
The methods of fair value measurement are classified into a hierarchy based on reliability of the information used to determine the valuation.
| 30 September 2017 £'000 |
30 September 2016 £'000 |
|
|---|---|---|
| Level 1 | ||
| Investments traded on AIM | 86,120 | 58,093 |
| Level 2 | ||
| Collective investment vehicles | 38,490 | 9,200 |
| Level 3 | ||
| Unquoted investments | 61,163 | 49,286 |
| Investments traded on AIM* | 1,591 | – |
| 187,364 | 116,579 |
* TLA Worldwide plc has been changed to a level 3 investment due to a suspension of trading during the year.
| Level 1 | Level 2 | Level 3 | |||
|---|---|---|---|---|---|
| Traded on AIM £'000 |
Collective investment vehicles £'000 |
Traded on AIM £'000 |
Unquoted £'000 |
Total £'000 |
|
| Opening book cost Opening unrealised appreciation |
47,957 10,136 |
3,525 5,675 |
– – |
40,740 8,546 |
92,222 24,357 |
| Opening valuation | 58,093 | 9,200 | – | 49,286 | 116,579 |
| Movements in the year: Transfer between levels Purchases at cost Holdings acquired following the acquisition of Baronsmead VCT5 plc Sale – proceeds – realised gains/(losses) on sales Unrealised losses realised during the year Increase/(decrease) in unrealised appreciation/(depreciation) |
(3,429) 3,426 23,251 (3,328) 860 (1,067) 8,314 |
– 34,090 6,810 (16,100) – – 4,490 |
3,429 – – – – – (1,838) |
– 5,499 9,077 (5,178) (609) (1) 3,089 |
– 43,015 39,138 (24,606) 251 (1,068) 14,055 |
| Closing valuation | 86,120 | 38,490 | 1,591 | 61,163 | 187,364 |
| Closing book cost Closing unrealised appreciation/(depreciation) |
67,670 18,450 |
28,325 10,165 |
3,429 (1,838) |
49,528 11,635 |
148,952 38,412 |
| Closing valuation | 86,120 | 38,490 | 1,591 | 61,163 | 187,364 |
| Equity shares Loan notes Collective investment vehicles |
86,120 – – |
– – 38,490 |
1,591 – – |
21,081 40,082 – |
108,792 40,082 38,490 |
| Closing valuation | 86,120 | 38,490 | 1,591 | 61,163 | 187,364 |
The gains and losses included in the above table have all been recognised in the Income Statement on page 45. TLA Worldwide plc has been changed to a level 3 investment due to a suspension of trading during the year.
2.4 Dividends
| Year ended 30 September 2017 |
Period ended 30 September 2016 |
|||||
|---|---|---|---|---|---|---|
| Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
| Amounts recognised as distributions to equity holders in the period: |
||||||
| For the year ended 30 September 2017 | ||||||
| – Interim dividend of 3.0p per ordinary share paid on 31 March 2017 |
100 | 5,887 | 5,987 | – | – | – |
| For the period ended 30 September 2016 | ||||||
| – First interim dividend of 7.0p per ordinary share paid on 3 June 2016 – Second interim dividend of 10.0p per |
– | – | – | – | 10,553 | 10,553 |
| ordinary share paid on 30 September 2016 | – | – | – | – | 15,142 | 15,142 |
| 100 | 5,887 | 5,987 | – | 25,695 | 25,695 |
Interest income on loan notes and dividends on preference shares are accrued on a daily basis. Provision is made against this income where recovery is doubtful.
Where the terms of unquoted loan notes only require interest or a redemption premium to be paid on redemption, the interest and the redemption premium is recognised as income once redemption is reasonably certain. Until such date interest is accrued daily and included within the valuation of the investment. When a redemption premium is designed to protect the value of the instrument holder's investment rather than reflect a commercial rate of revenue return the redemption premium should be recognised as capital. The treatment of redemption premiums is analysed to consider if they are revenue or capital in nature on a company by company basis. No redemption premiums were received in the year ended 30 September 2017.
Income from fixed interest securities and deposit interest is included on an effective interest rate basis.
Dividends on quoted shares are recognised as income when the related investments are marked ex-dividend and where no dividend date is quoted, when the Company's right to receive payment is established.
| Year ended 30 September 2017 |
Period ended 30 September 2016 |
||||||
|---|---|---|---|---|---|---|---|
| Quoted securities £'000 |
Unquoted securities £'000 |
Total £'000 |
Quoted securities £'000 |
Unquoted securities £'000 |
Total £'000 |
||
| Income from investments† | |||||||
| Dividend income Interest income |
1,479 17 |
– 1,618 |
1,479 1,635 |
676 18 |
– 470 |
676 488 |
|
| 1,496 | 1,618 | 3,114 | 694 | 470 | 1,164 | ||
| Other income‡ Deposit interest |
5 | 57 | |||||
| Total income | 3,119 | 1,221 |
† All investments have been included at fair value through profit or loss on initial recognition, therefore all investment income arises on investments at fair value through profit or loss.
‡ Other income on financial assets not included at fair value through profit or loss.
All expenses are recorded on an accruals basis.
| Year ended 30 September 2017 |
Period ended 30 September 2016 |
|||||
|---|---|---|---|---|---|---|
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Investment management fee | 1,092 | 3,276 | 4,368 | 616 | 1,847 | 2,463 |
| Performance fee | – | – | – | – | – | – |
| 1,092 | 3,276 | 4,368 | 616 | 1,847 | 2,463 |
Management fees are allocated 25 per cent income and 75 per cent capital derived in accordance with the board's expected split between long term income and capital returns. Performance fees are allocated 100 per cent to capital.
The management agreement may be terminated by either party giving 12 months notice of termination.
The Manager, Livingbridge VC LLP, receives a fee of 2.5 per cent per annum of the net assets of the Company, calculated and payable on a quarterly basis.
The Manager is entitled to a performance fee when the total return on net proceeds of the ordinary shares exceeds 8 per cent per annum (on a simple basis). The Manager is entitled to 10 per cent of the excess. The amount of any performance fee which is paid in respect of a calculation period shall be capped at 5 per cent of the shareholders' funds at the end of the calculation period. No performance fee is payable for the year ended 30 September 2017 (period ended 30 September 2016: £nil).
2.6 Investment management fee and other expenses (continued) Other expenses
| Year ended | Period ended | |
|---|---|---|
| 30 September | 30 September | |
| 2017 | 2016 | |
| £'000 | £'000 | |
| Directors' fees | 100 | 86 |
| Secretarial and accounting fees paid to the Manager | 162 | 110 |
| Remuneration of the auditors and their associates: | ||
| – audit | 33 | 29 |
| – other services supplied pursuant to legislation (interim review) | 6 | 6 |
| Merger costs | 302 | 365 |
| Other | 229 | 214 |
| 832 | 810 |
Information on Directors' remuneration is given in the Directors' emoluments table on page 35.
Charges for other services provided by the Auditors in the year ended 30 September 2017 were in relation to the interim review. The Audit Committee reviews the nature and extent of non-audit services to ensure that independence is maintained. The Directors consider that the Auditors were best placed to provide such services.
| As at | As at | |
|---|---|---|
| 30 September | 30 September | |
| 2017 | 2016 | |
| £'000 | £'000 | |
| Prepayments and accrued income | 260 | 203 |
| Amounts due from sale of shares from treasury | – | 1,261 |
| 260 | 1,464 |
| As at | As at | ||
|---|---|---|---|
| 30 September | 30 September | ||
| 2017 | 2016 | ||
| £'000 | £'000 | ||
| Management, secretarial and accounting fees due to the Manager | 1,215 | 922 | |
| Merger costs | 55 | 208 | |
| Share premium cancellation costs | 24 | – | |
| Other creditors | 156 | 115 | |
| 1,450 | 1,245 |
UK corporation tax payable is provided on taxable profits at the current rate.
Provision is made for deferred taxation on the liability method, without discounting, on all timing differences calculated at the current rate of tax relevant to the benefit or liability.
The tax charge for the year is lower than the standard rate of corporation tax in the UK for a company. The differences are explained below:
| Year ended 30 September 2017 |
Period ended 30 September 2016 |
||||||
|---|---|---|---|---|---|---|---|
| Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
||
| Profit/(loss) before taxation | 1,195 | 9,962 | 11,157 | (205) | 6,289 | 6,084 | |
| Corporation tax at 19.5 per cent (2016: 20 per cent)* Effect of: |
233 | 1,943 | 2,176 | (41) | 1,258 | 1,217 | |
| Non-taxable gains Non-taxable dividend income Non-deductible expenses Losses carried forward |
– (288) 59 (4) |
(2,581) – – 638 |
(2,581) (288) 59 634 |
– (135) – 176 |
(1,627) – – 369 |
(1,627) (135) – 545 |
|
| Tax charge/(credit) for the year | – | – | – | – | – | – |
* The corporation tax rate applied is based on the average tax rates for the financial years ended 30 September 2017 and 2016. The actual rates were 20 per cent until 31 March 2017 and 19 per cent from 1 April 2017.
At 30 September 2017 the Company had surplus management expenses of £9,609,937 (2016: £6,728,994) which have not been recognised as a deferred tax asset. This is because the Company is not expected to generate taxable income in a future year in excess of the deductible expenses of that future year and, accordingly, the Company is unlikely to be able to reduce future tax liabilities through the use of existing surplus expenses. Due to the Company's status as a VCT, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.
Allotted, called-up and fully paid:
| Ordinary shares | £'000 |
|---|---|
| 161,960,010 ordinary shares of 10p each listed at 1 October 2016 | 16,196 |
| 47,077,911 ordinary shares of 10p each issued as consideration shares following the acquisition of BVCT5 | 4,708 |
| 209,037,921 ordinary shares of 10p each listed at 30 September 2017 | 20,904 |
| 9,089,214 ordinary shares of 10p each held in treasury at 1 October 2016 | (909) |
| 2,604,000 ordinary shares of 10p each repurchased during the year and held in treasury | (260) |
| 11,693,214 ordinary shares of 10p each held in treasury at 30 September 2017 | (1,169) |
| 197,344,707 ordinary shares of 10p each in circulation* at 30 September 2017 | 19,735 |
* Carrying one vote each.
On 30 November 2016, the Company acquired the assets of Baronsmead VCT 5 plc ("BVCT5") in exchange for the issue of new shares to BVCT5 shareholders. This resulted in a total consideration, as shown above and Note 3.2, of £42,953,000 being transferred to the Company which included investments, as shown in Note 2.3, totalling £39,138,000. The remaining assets, including cash and other net current assets and liabilities, totalled £3,815,000. All identified assets and liabilities were recognised at cost which approximated fair value and no goodwill was recognised on acquisition.
During the period the Company bought back into treasury 2,604,000 ordinary shares, representing 1.61 per cent of the ordinary shares in issue at the beginning of the financial year.
On 26 October 2017, the Company allotted 13,797,365 new ordinary shares and a further 7,350,154 new ordinary shares on 17 November 2017. See page 23 of the Report of the Directors for further details.
When the Company re-acquires its own shares, they are currently held as treasury shares and not cancelled.
Shareholders have authorised the board to re-issue treasury shares at a discount to the prevailing NAV subject to the following conditions:
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 reserve £'000 |
Revenue reserve £'000 |
Total £'000 |
Share premium £'000 |
Revaluation reserve* £'000 |
Total £'000 |
|
| At 1 October 2016 | 18,394 | 495 | 18,889 | 81,466 | 24,357 | 105,823 |
| Shares issued as consideration following | ||||||
| the acquisition of BVCT5 | – | – | – | 38,245 | – | 38,245 |
| Cancellation of share premium | 119,711 | – | 119,711 | (119,711) | – | (119,711) |
| Share premium cancellation costs | (29) | – | (29) | – | – | – |
| Purchase of shares for treasury | (2,302) | – | (2,302) | – | – | – |
| Net cost of share buybacks | (11) | – | (11) | – | – | – |
| Reallocation of prior year unrealised losses | (1,068) | – | (1,068) | – | 1,068 | 1,068 |
| Realised gain on disposal of investments# | 251 | – | 251 | – | – | – |
| Net increase in value of investments# | – | – | – | – | 12,987 | 12,987 |
| Management fee capitalised# | (3,276) | – | (3,276) | – | – | – |
| Profit after taxation# | – | 1,195 | 1,195 | – | – | – |
| Dividends paid in the year | (5,887) | (100) | (5,987) | – | – | – |
| At 30 September 2017 | 125,783 | 1,590 | 127,373 | – | 38,412 | 38,412 |
* Changes in fair value of investments are dealt with in this reserve.
Distributable reserves may also include any net unrealised gains on investments whose prices are quoted in an active market and deemed readily realisable in cash.
Share premium is recognised net of issue costs.
The Company does not have any externally imposed capital requirements.
On 20 September 2017, the share premium account was cancelled by an Order of Court following the passing of a Special Resolution. The credit arising of £119,711,000 has been applied in creating a special reserve, within the capital reserve, which shall be able to be applied in any manner in which the Company's profits available for distribution (as determined in accordance with section 649 of the Companies Act 2006) are able to be applied.
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 includes price risk on investments and interest rate risk on investments and other financial assets and liabilities.
The investment portfolio is managed in accordance with the policies and procedures described on pages 18 to 21 of the Strategic Report.
Investments in unquoted stocks and AIM-traded companies involve a higher degree of risk than investments in the main market. The Company aims to reduce this risk by diversifying the portfolio across business sectors and asset classes.
Management performs continuing analysis on the fair value of investments and the Company's overall market positions are monitored by the board on a quarterly basis. Management are comfortable that a 5% movement in share price is a reasonable estimate of the upside and downside alternatives.
| As at 30 September 2017 | As at 30 September 2016 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 5% increase | 5% decrease | 5% increase | 5% decrease | ||||||
| in share price | in share price | in share price | in share 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 | £'000 | £'000 | investment | £'000 | £'000 | ||||
| AIM & CIV | 67 | 6,310 | (6,310) | 58 | 3,365 | (3,365) | |||
| Unquoted | 33 | 3,058 | (3,058) | 42 | 2,464 | (2,464) |
Valuation methodology includes the application of earnings multiples derived from either listed companies with similar characteristics or recent comparable transactions. Therefore the value of the unquoted element of the portfolio may also indirectly be affected by price movements on the listed exchanges.
The Company has the following investments in fixed rate financial assets:
| As at 30 September 2017 | As at 30 September 2016 | |||||||
|---|---|---|---|---|---|---|---|---|
| Total investment £'000 |
Weighted average interest rate % |
Weighted average time for which rate is fixed years |
Total investment £'000 |
Weighted average interest rate % |
Weighted average time for which rate is fixed years |
|||
| Fixed rate loan note securities Floating rate sterling liquidity funds Cash at bank and on deposit |
40,082 15,490 515 56,087 |
9.13 – – |
2.39 – – |
37,022 – 24,110 61,132 |
9.01 – – |
2.06 – – |
Credit risk refers to the risk that counterparty will default on its obligation resulting to a financial loss to the Company. The Investment Manager monitors credit risk on an ongoing basis.
At the reporting date, the Company's financial assets exposed to credit risk amounted to the following:
| As at | As at | |
|---|---|---|
| 30 September | 30 September | |
| 2017 | 2016 | |
| £'000 | £'000 | |
| Cash at bank and on deposit | 515 | 24,110 |
| Interest, dividends and other receivables | 260 | 1,464 |
| 775 | 25,574 |
Credit risk on unquoted loan stock held within unlisted investments is considered to be part of market risk as disclosed earlier in the note.
Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions is considered to be small due to the short settlement period involved and the high credit quality of the brokers used. The Board monitors the quality of service provided by the brokers used to further mitigate this risk.
All the assets of the Company which are traded on a recognised exchange are held by JP Morgan Chase ("JPM"), the Company's custodian. The board monitors the Company's risk by reviewing the custodian's internal controls reports as described in the Corporate Governance section of this report.
The cash held by the Company is held by JPM. The board monitors the Company's risk by reviewing regularly the internal control reports of these banks. Should the credit quality or the financial position of either bank deteriorate significantly the Investment Manager will seek to move the cash holdings to another bank.
There were no significant concentrations of credit risk to counterparties at 30 September 2017 or 2016. No individual investment in a portfolio company exceeded 3.8 per cent of the net assets attributable to the Company's shareholders at 30 September 2017 (2016: 5.4 per cent).
The Company's financial instruments include investments in unquoted companies which are not traded in an organised public market, as well as AIM-traded equity investments, all of which generally may be illiquid. As a result, the Company may not be able to liquidate quickly some of its investments in these instruments at an amount close to their fair value in order to meet its liquidity requirements, or to respond to specific events such as deterioration in the creditworthiness of any particular issuer.
The Company's liquidity risk is managed on an ongoing basis by the Investment Manager. The Company's overall liquidity risks are monitored on a quarterly basis by the Board.
The Company maintains sufficient investments in cash and readily realisable securities to pay accounts payable and accrued expenses. At 30 September 2017 these investments were valued at £16,005,000 (2016: £24,110,000).
Related party transactions include Management, Secretarial, Accounting and Performance fees payable to the Manager, Livingbridge VC LLP, as disclosed in notes 2.6 and 2.8, and fees paid to the Directors as disclosed in note 2.6. In addition, the Manager operates a Co-investment Scheme, detailed in the Management retention section of the Strategic Report on page 20, whereby employees of the Manager are entitled to participate in all eligible unquoted investments alongside the Company.
During the year the Manager and an affiliate received £48,000 (2016: £nil) advisory fees, £448,000 (2016: £252,000) directors' fees for services provided to companies in the investment portfolio and incurred £14,000 (2016: £12,000) abort fees with respect to investments attributable to BSVT.
The Company has one reportable segment being investing in primarily a portfolio of UK growth businesses, whether unquoted or traded on AIM.
Following the Balance Sheet date the Company realised its investment in IP Solutions Limited at the trading company level with funds being retained at the group level at present, this realisation is expected to return proceeds to the Company totalling £1.02m and making a return of 0.43x cost.
Following the Balance Sheet date the Company realised its investment in Eque2 Limited returning proceeds totalling £5.13m and making a return of 2.74x cost.
Since the year end on 26 October 2017 the Company allotted 13,797,365 new ordinary shares pursuant to the offer for subscription set out in the prospectus published on 4 October 2017. These new shares were allotted at a price of 97.60 pence per share, representing 6.19 per cent of the issued share capital following the allotment with an aggregate nominal value of £1.38m, raising a further £13.47m of new funds (before expenses).
The Company allotted 7,350,154 new ordinary shares on 17 November 2017 pursuant to the offer for subscription set out in the prospectus published on 4 October 2017. These shares were allotted at a price of 97.10 pence per share, representing 3.19 per cent of the issued share capital following the allotment with an aggregate nominal value of £0.74m, raising a further £7.14m of new funds (before expenses).
The suspension for trading on AIM was lifted on 16 November 2017.
The Company's investment policy is to invest primarily in a diverse portfolio of UK growth businesses, whether unquoted or traded on AIM, which are substantially based in the UK, although many of these investees may have some trade overseas.
Investments are made selectively across a range of sectors in companies that have the potential to grow and enhance their value and which will diversify the portfolio.
The Company will make investments in accordance with the prevailing VCT legislation which places restrictions, inter alia, on the type and age of investee companies as well as the maximum amount of investment that such investee companies may receive.
The Company invests in a range of securities including, but not limited to, ordinary and preference shares, loan stocks, convertible securities, and permitted non-qualifying investments as well as cash. Unquoted investments are usually structured as a combination of ordinary shares and loan stocks or preference shares, while AIM-traded investments are primarily held in ordinary shares. No single investment may represent more than 15 per cent (by VCT value) of the Company's total investments.
Pending investment in VCT qualifying investments, the Company's cash and liquid funds are held in permitted non-qualifying investments.
Investments are selected in the expectation that the application of private equity disciplines including active management of the investments will enhance value and enable profits to be realised on the sale of investments.
The Company typically invests alongside Baronsmead Venture Trust plc in companies sourced by Livingbridge VC LLP ("the Manager").
The Manager's members and staff invest in unquoted investments alongside the Company. This scheme is in line with current practice of private equity houses and its objective is to attract, recruit, retain and incentivise the Manager's team and is made on terms which align the interests of shareholders and the Manager.
Should it be required 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 of association.
* Includes proposed final dividend of 4.5p.
| Ordinary share | |||||||
|---|---|---|---|---|---|---|---|
| Average | |||||||
| Dividend History | Cumulative | total dividend | |||||
| Revenue | Capital | per ordinary share | dividends | per ordinary share | |||
| Period ended | (p) | (p) | (p) | (p) | (p) | ||
| 31/12/2001 | 2.30 | 0.00 | 2.30 | 2.30 | 2.30 | ||
| 31/12/2002 | 2.80 | 0.00 | 2.80 | 5.10 | 2.55 | ||
| 31/12/2003 | 2.20 | 2.00 | 4.20 | 9.30 | 3.10 | ||
| 31/12/2004 | 1.20 | 3.30 | 4.50 | 13.80 | 3.45 | ||
| 31/12/2005 | 2.00 | 3.50 | 5.50 | 19.30 | 3.86 | ||
| 31/12/2006 | 1.75 | 4.75 | 6.50 | 25.80 | 4.30 | ||
| 31/12/2007 | 2.30 | 5.20 | 7.50 | 33.30 | 4.76 | ||
| 31/12/2008 | 2.40 | 5.10 | 7.50 | 40.80 | 5.10 | ||
| 31/12/2009 | 1.20 | 6.30 | 7.50 | 48.30 | 5.37 | ||
| 31/12/2010 | 2.00 | 5.50 | 7.50 | 55.80 | 5.58 | ||
| 31/12/2011 | 1.65 | 5.85 | 7.50 | 63.30 | 5.75 | ||
| 31/12/2012 | 0.50 | 7.00 | 7.50 | 70.80 | 5.90 | ||
| 31/12/2013 | 3.00 | 4.50 | 7.50 | 78.30 | 6.02 | ||
| 31/12/2014 | 1.95 | 15.05 | 17.00 | 95.30 | 6.81 | ||
| 31/12/2015 | 0.90 | 6.60 | 7.50 | 102.80 | 6.85 | ||
| 30/09/2016 | 0.00 | 17.00 | 17.00 | 119.80 | 7.61 | ||
| 30/09/2017* | 0.60 | 6.90 | 7.50 | 127.30 | 7.60 |
* Includes proposed final dividend of 4.5p.
| Ordinary share | ||||||
|---|---|---|---|---|---|---|
| Period ended | Total net assets £m |
NAV per share (p) |
Share price (p) |
NAV TR per share (p)* |
Ongoing charges (%)† |
|
| 31/12/2001 | 31.1 | 93.85 | 88.00 | 101.21 | 2.9 | |
| 31/12/2002 | 32.1 | 94.85 | 85.50 | 105.35 | 3.3 | |
| 31/12/2003 | 33.0 | 97.15 | 90.00 | 112.65 | 3.1 | |
| 31/12/2004 | 35.1 | 106.38 | 92.50 | 125.64 | 3.5 | |
| 31/12/2005 | 56.2 | 117.31 | 100.50 | 144.77 | 3.5 | |
| 31/12/2006 | 66.5 | 130.77 | 116.50 | 169.27 | 3.4 | |
| 31/12/2007 | 65.2 | 120.44 | 111.50 | 170.56 | 3.4 | |
| 31/12/2008 | 55.1 | 102.72 | 90.50 | 149.56 | 3.0 | |
| 31/12/2009 | 52.9 | 97.50 | 86.25 | 159.89 | 3.1 | |
| 31/12/2010 | 64.6 | 106.60 | 94.25 | 180.19 | 3.0 | |
| 31/12/2011 | 60.1 | 100.16 | 91.25 | 189.74 | 3.0 | |
| 31/12/2012 | 74.6 | 111.62 | 105.38 | 217.38 | 3.0 | |
| 31/12/2013 | 74.9 | 113.40 | 106.25 | 245.38 | 3.0 | |
| 31/12/2014 | 76.6 | 101.72 | 95.00 | 257.18 | 2.9 | |
| 31/12/2015 | 79.2 | 106.46 | 101.00 | 288.38 | 3.0 | |
| 30/09/2016 | 140.9 | 92.17 | 87.13 | 295.75 | 2.9 | |
| 30/09/2017 | 186.7 | 94.60 | 89.50 | 313.53 | 2.7 |
* Net asset value total return (gross dividends reinvested). Source: Livingbridge VC LLP.
† Figures from 31 December 2012 onwards are based on the new AIC guidelines for the calculation of ongoing charges.
| Year subscribed | Cash invested (p) |
Income tax reclaim (p) |
Net cash invested (p) |
Cumulative dividends paid* (p) |
Return on cash invested (%) |
|---|---|---|---|---|---|
| 2001 (January) | 100.0 | 20.0 | 80.0 | 127.3 | 147.3 |
| 2005 (March) – C share | 100.0 | 40.0 | 60.0 | 87.5 | 127.5 |
| 2010 (March) | 103.1 | 30.9 | 72.2 | 79.0 | 106.6 |
| 2012 (December) | 117.4 | 35.2 | 82.2 | 61.0 | 82.0 |
| 2014 (March) | 112.4 | 33.7 | 78.7 | 41.0 | 66.5 |
| 2016 (February) | 107.2 | 32.2 | 75.0 | 24.5 | 52.9 |
The total return could be higher for those shareholders who were able to defer a capital gain on subscription and the net sum invested may be less. Dividends paid to C shareholders post conversion have been adjusted by the conversion ratio (0.85642528).
* Includes proposed final dividend of 4.5p.
| % of Equity 30 September 30 September held by |
|
|---|---|
| Original Accounting 2017 2016 Baronsmead |
% of Equity |
| Book cost† Book cost† Valuation Valuation+ % of net Second Venture |
held by |
| Company Sector £'000 £'000 £'000 £'000 assets Trust plc |
all funds# |
| Unquoted | |
| Pho Holdings Ltd Consumer Markets 2,422 3,435 5,139 4,707 2.8 13.6 |
28.0 |
| Crew Clothing Holdings Ltd Consumer Markets 2,904 3,695 5,032 5,023 2.7 15.1 |
31.0 |
| Happy Days Consultancy Ltd Healthcare & Education 4,180 4,482 5,029 4,895 2.7 31.5 |
65.0 |
| Carousel Logistics Ltd Business Services 2,336 2,967 4,672 3,742 2.5 14.7 |
40.0 |
| Eque2 Ltd TMT* 1,872 2,728 4,595 3,602 2.5 18.6 |
38.5 |
| Key Travel Ltd Business Services 2,333 2,975 4,480 3,566 2.4 11.5 |
48.0 |
| Create Health Ltd Healthcare & Education 1,230 3,142 4,470 5,867 2.4 14.0 |
29.0 |
| Armstrong Craven Ltd Business Services 1,645 2,504 3,834 3,573 2.1 18.9 |
46.0 |
| Kirona Ltd TMT* 2,332 2,632 3,829 3,269 2.1 9.2 |
37.5 |
| CableCom II Networking Holdings Ltd TMT* 2,500 2,731 3,779 3,187 2.0 4.0 |
9.2 |
| Ten10 Group Ltd Business Services 2,331 2,626 2,850 2,690 1.5 11.4 |
30.6 |
| In The Style Fashion Ltd Consumer Markets 2,750 2,750 2,750 – 1.5 9.8 |
20.2 |
| Niche Finance Group Ltd Consumer Markets 2,335 2,402 2,703 2,985 1.5 7.6 |
35.2 |
| CR7 Services Ltd TMT* 2,306 2,304 2,306 2,306 1.2 2.8 |
15.0 |
| Symphony Ventures Ltd Business Services 1,924 1,924 1,924 – 1.0 4.8 |
10.0 |
| Upper Street Events Ltd Consumer Markets 2,330 2,635 1,572 2,788 0.8 19.6 |
70.1 |
| IP Solutions Ltd TMT* 2,333 1,878 1,374 1,540 0.7 38.5 |
80.5 |
| SilkFred Ltd Consumer Markets 550 550 550 – 0.3 2.0 |
3.6 |
| Custom Materials Ltd Consumer Markets 275 275 275 – 0.1 3.0 |
5.5 |
| Xention Pharma Ltd Healthcare & Education 893 893 – – 0.0 1.7 |
2.9 |
| Total unquoted 41,781 49,528 61,163 32.8 |
|
| AIM | |
| IDOX plc TMT* 1,028 2,972 7,141 7,555 3.8 2.7 |
4.2 |
| Netcall plc TMT* 2,616 5,983 7,100 7,840 3.8 10.4 |
17.3 |
| Bioventix plc Healthcare & Education 555 1,688 5,712 2,274 3.1 4.1 |
7.5 |
| Dods (Group) plc TMT* 3,268 4,253 5,551 5,551 3.0 12.1 |
20.1 |
| Inspired Energy plc Business Services 861 2,682 5,337 3,764 2.9 4.8 |
8.0 |
| Ideagen plc TMT* 1,650 2,467 4,904 3,249 2.6 3.1 |
5.6 |
| Anpario plc Healthcare & Education 662 2,239 3,835 2,349 2.1 4.1 |
6.1 |
| Cerillion plc TMT* 2,200 2,432 3,416 3,647 1.8 9.8 |
17.8 |
| Plastics Capital plc Business Services 2,539 2,673 3,004 2,851 1.6 6.5 |
10.6 |
| Wey Education plc Healthcare & Education 523 516 2,836 560 1.5 14.4 |
26.1 |
| EG Solutions plc TMT* 1,985 1,407 2,692 1,139 1.4 10.7 |
19.1 |
| CloudCall Group plc TMT* 1,008 878 2,046 71 1.1 6.9 |
12.5 |
| Everyman Media Group plc Consumer Markets 956 1,010 1,983 1,257 1.1 1.9 |
3.5 |
| CentralNic Group plc TMT* 1,122 1,354 1,871 1,238 1.0 3.0 |
5.5 |
| Fulcrum Utility Services Ltd Business Services 438 1,650 1,816 1,331 1.0 2.1 |
2.3 |
| Vianet Group plc Business Services 2,092 1,724 1,774 1,542 0.9 5.9 |
9.6 |
| Tasty plc Consumer Markets 2,033 6,085 1,752 7,558 0.9 8.4 |
12.9 |
| Driver Group plc Business Services 1,529 1,747 1,701 1,378 0.9 5.4 |
9.5 |
| LoopUp Group plc TMT* 616 640 1,663 739 0.9 1.5 |
2.7 |
| Sanderson Group plc TMT* 1,324 1,562 1,657 1,682 0.9 4.6 |
8.7 |
| TLA Worldwide plc Business Services 2,136 3,429 1,591 4,350 0.9 7.4 |
12.5 |
| Escher Group Holdings plc TMT* 1,365 1,286 1,566 1,788 0.8 4.3 |
7.1 |
| Gama Aviation plc Business Services 1,004 1,171 1,496 814 0.8 1.4 |
2.4 |
| Plant Impact plc Business Services 1,562 1,610 1,259 554 0.7 4.9 |
9.0 |
| Eden Research plc Business Services 1,100 1,105 1,181 1,208 0.6 5.2 |
9.4 |
| Original Book cost† |
Accounting Book cost† |
30 September 2017 Valuation |
30 September 2016 Valuation+ |
% of Equity held by Baronsmead % of net Second Venture |
% of Equity held by |
|||
|---|---|---|---|---|---|---|---|---|
| Company | Sector | £'000 | £'000 | £'000 | £'000 | assets | Trust plc | all funds# |
| AIM (continued) | ||||||||
| Property Franchise Group plc (formerly MartinCo plc) |
Consumer Markets | 838 | 1,032 | 1,073 | 1,299 | 0.6 | 3.2 | 5.9 |
| SysGroup plc | TMT* | 1,579 | 1,578 | 1,051 | 1,469 | 0.6 | 11.0 | 19.9 |
| FreeAgent Holdings plc | TMT* | 963 | 946 | 1,031 | – | 0.6 | 2.8 | 5.1 |
| Venn Life Sciences Holdings plc | Healthcare & Education | 1,496 | 1,488 | 881 | 1,727 | 0.5 | 11.9 | 21.7 |
| Belvoir Lettings plc | Consumer Markets | 919 | 826 | 812 | 1,040 | 0.4 | 2.2 | 3.9 |
| Begbies Traynor Group plc | Business Services | 545 | 513 | 792 | 558 | 0.4 | 1.1 | 2.1 |
| STM Group plc | Business Services | 755 | 677 | 765 | 692 | 0.4 | 2.4 | 3.6 |
| Rosslyn Data Technologies plc | TMT* | 527 | 527 | 761 | – | 0.4 | 6.2 | 11.3 |
| Brady plc | TMT* | 653 | 702 | 751 | 741 | 0.4 | 1.3 | 2.0 |
| Paragon Entertainment Ltd | Consumer Markets | 1,045 | 642 | 715 | 503 | 0.4 | 11.9 | 19.1 |
| Castleton Technology plc | TMT* | 247 | 499 | 588 | 606 | 0.3 | 1.2 | 2.2 |
| Crawshaw Group plc | Consumer Markets | 835 | 1,310 | 579 | 1,140 | 0.3 | 3.1 | 3.9 |
| Scholium Group plc | Consumer Markets | 1,100 | 682 | 495 | 396 | 0.3 | 8.1 | 14.7 |
| Synectics plc | Business Services | 481 | 373 | 473 | 373 | 0.3 | 1.0 | 2.1 |
| Science In Sport plc | Consumer Markets | 352 | 330 | 405 | 417 | 0.2 | 1.3 | 2.4 |
| Collagen Solutions plc | Healthcare & Education | 412 | 412 | 392 | – | 0.2 | 2.5 | 4.6 |
| InterQuest Group plc | Business Services | 620 | 726 | 304 | 439 | 0.2 | 2.9 | 5.8 |
| Totally plc | Healthcare & Education | 86 | 197 | 233 | 307 | 0.1 | 0.9 | 1.7 |
| Gresham House plc | TMT* | 137 | 145 | 165 | 149 | 0.1 | 0.4 | 0.7 |
| Adept4 plc | TMT* | 535 | 359 | 155 | 276 | 0.1 | 1.4 | 2.6 |
| MXC Capital Ltd | Business Services | 276 | 308 | 154 | 319 | 0.1 | 0.3 | 0.6 |
| Mi-Pay Group plc | Business Services | 800 | 474 | 83 | 154 | 0.0 | 1.5 | 3.1 |
| One Media iP Group plc | TMT* | 276 | 180 | 81 | 81 | 0.0 | 3.8 | 6.9 |
| Zoo Digital Group plc | TMT* | 817 | 586 | 38 | 8 | 0.0 | 0.1 | 0.3 |
| Ubisense Group plc | TMT* | 158 | 78 | 29 | 84 | 0.0 | 0.2 | 0.3 |
| APC Technology Group plc | Business Services | 2,638 | 946 | 21 | 25 | 0.0 | 0.2 | 0.4 |
| Total AIM | 55,262 | 71,099 | 87,711 | 47.0 | ||||
| Collective investment vehicles | ||||||||
| CF Livingbridge UK Micro Cap Fund | 6,189 | 10,335 | 20,389 | 16,070 | 11.0 | |||
| BlackRock Sterling Liquidity Fund | 7,745 | 7,745 | 7,745 | – | 4.1 | |||
| JPMorgan Sterling Liquidity Fund | 7,745 | 7,745 | 7,745 | – | 4.1 | |||
| CF Livingbridge UK Multi Cap Income Fund | 2,500 | 2,500 | 2,611 | – | 1.4 | |||
| Total collective investment vehicles | 24,179 | 28,325 | 38,490 | 20.6 | ||||
| Total investments | 121,222 | 148,952 | 187,364 | 100.4 | ||||
| Net current liabilities | (675) | (0.4) | ||||||
| Net assets | 186,689 | 100.0 |
† The original book cost column provides the pro-forma combined cost of investments made by BVCT3, BVCT4 and BVCT5 prior to the acquisition and re-naming of BVCT3 as BSVT.
BSVT acquired the investments of BVCT4 at fair value on 11 March 2016 (total cost – £51,334,000) and the investments of BVCT5 at fair value on 30 November 2016 (total cost – £39,138,000). The accounting book cost column for the combined BSVT reflects the original cost of BVCT3's assets plus the fair value cost at which BVCT4's and BVCT5's assets were purchased.
The accounting cost column ties into the investment note on page 50 of these financial statements however the original cost of the investment has been included to make it clearer for shareholders to review the portfolio.
* Technology, Media & Telecommunications ("TMT").
Many companies are aware that their shareholders have received unsolicited phone calls or correspondence concerning investment matters. These are typically from overseas based "brokers" who target UK shareholders offering to sell them what often turn out to be worthless or high risk shares in US or UK investments. They can be very persistent and extremely persuasive. Shareholders are therefore advised to be very wary of any unsolicited advice, offers to buy shares at a discount or offers for free company reports.
Please note that it is very unlikely that either the Company or the Company Registrar, Computershare, would make unsolicited telephone calls to shareholders and that any such calls would relate only to official documentation already circulated to shareholders and never in respect of investment "advice".
If you are in any doubt about the veracity of an unsolicited phone call, please call either the Company or the Registrar at the numbers provided above.
The Registrar for Baronsmead Second Venture Trust Computershare Investor Services PLC ("Computershare"). The Registrar will deal with all of your queries with regard to your shareholder account, such as:
You can contact Computershare with your queries in several ways:
| Telephone: | 0800 923 1534 | This is an automated self-service system l |
|---|---|---|
| It is available 24 hours a day, 7 days a week l |
||
| You should have your Shareholder Reference Number ("SRN") to l hand, which is available on your share certificate and dividend tax voucher and which you should always keep confidential for security reasons |
||
| Press '0' if you wish to speak to someone l |
||
| The Contact Centre in Bristol is available on UK business days l between 8.30am – 5.00pm Monday to Friday |
||
| On-line: | Investor Centre www.investorcentre.co.uk |
Computershare's secure website, Investor Centre, allows you to l manage your own shareholding online |
| You will need to register to use this service on the Investor l Centre website |
||
| You should have your SRN to hand, which is available on your l share certificate and dividend tax voucher and which you should always keep confidential for security reasons |
||
| Email: | [email protected] | |
| Post: | Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZZ |
The Company's shares are listed on the London Stock Exchange. The mid-price of the Company's shares is given daily in the Financial Times in the Investment Companies section of the London Share Service. Share price information can also be obtained from the link on the Company's website and many financial websites.
January 2018 Annual General Meeting
May 2018 Announcement of interim report and posting of half-yearly report
November 2018 Announcement of final results for year to 30 September 2018
The information provided in this report has been produced in order for shareholders to be informed of the activities of the Company during the period it covers. Livingbridge VC LLP does not give investment advice and the naming of companies in this report is not a recommendation to deal in them.
Baronsmead Second Venture Trust plc is managed by Livingbridge VC LLP which is Authorised and regulated by the FCA. Past performance is not necessarily a guide to future performance. Stock markets and currency movements may cause the value of investments and the income from them to fall as well as rise and investors may not get back the amount they originally invested. Where investments are made in unquoted securities and smaller companies, their potential volatility may increase the risk to the value of, and the income from, the investment.
The Company's shares can be bought and sold in the same way as any other quoted company on the London Stock Exchange via a stockbroker.
The market makers in the shares of Baronsmead Second Venture Trust plc are: Panmure Gordon & Co. 020 7886 2500 (the Company's broker) Winterflood 020 3400 0251
Qualifying investors* who invest in the existing shares of the Company can benefit from:
The UK tax treatment of VCTs is on a first in first out basis and therefore tax advice should be obtained before shareholders dispose of their shares and also if they deferred a capital gain in respect of new shares acquired prior to 6 April 2004.
* UK income tax payers, aged 18 or over, who acquire no more than £200,000 worth of VCT shares in a tax year.
Anthony Townsend (Chairman)† Ian Orrock Malcolm Groat* John Davies‡
Livingbridge VC LLP
100 Wood Street London EC2V 7AN
Livingbridge VC LLP 100 Wood Street London EC2V 7AN 020 7506 5717
04115341
Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZZ Tel: 0800 923 1534
Panmure Gordon & Co One New Change London EC4M 9AF Tel: 020 7886 2500
KPMG LLP Saltire Court 20 Castle Terrace Edinburgh EH1 2EG
Dickson Minto W.S. Broadgate Tower 20 Primrose Street London EC2A 2EW
PricewaterhouseCooper LLP 1 Embankment Place London WC2N 6RH
www.baronsmeadvcts.co.uk
† Chairman of Management Engagement and Remuneration Committee, Chairman of the Nomination Committee
* Chairman of the Audit Committee
‡ Senior Independent Director
Investment Manager www.livingbridge.com T 020 7506 5600
100 Wood Street London EC2V 7AN T 020 7506 5717 www.baronsmeadvcts.co.uk
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