Annual Report • Dec 8, 2021
Annual Report
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Baronsmead Second Venture Trust plc Annual Report and Audited Financial Statements for the year ended 30 September 2021
Baronsmead Second Venture Trust plc (the "Company") is a tax efficient listed company which aims to achieve longterm investment returns for private investors, including tax free dividends.
Investment policy
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To invest primarily in a diverse portfolio of UK growth businesses, whether unquoted or traded on AIM.
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The Company 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 endeavours to select the best opportunities and applies a distinctive selection criteria based on:
In order to ensure a strong pipeline of opportunities, the Manager invests in building deep sector knowledge and networks and undertakes significant proactive marketing to interesting target companies in preferred sectors. This approach generates a network of potentially suitable businesses with which the Manager maintains a relationship ahead of possible investment opportunities.
The Manager is an engaged and supportive shareholder (on behalf of the Company) in both unquoted and significant quoted investments. For unquoted investments, representatives of the Manager often join the investee board. The role of the Manager with investees is to ensure that strategy is clear, the business plan can be implemented and that the management resources are in place to deliver profitable growth. The intention is to build on the business model and grow the company into an attractive target able to be either sold or potentially floated in the medium term.
IWP is a leading consolidator of independent wealth planning businesses. The Baronsmead investment provided growth capital for the business before it began its acquisition strategy, enabling it to establish its integrated investment management practice. To date, the business has acquired 30 businesses and has a healthy pipeline of potential acquisitions.
TPX Impact is a technologyenabled services company focused on digital transformation. The business is being increasingly recognised as a leading alternative digital transformation provider to the UK public services sector, representing 70% of its client base.
Access Intelligence delivers SaaS solutions to over 6,000 organisations, providing marketing insights that support initiatives to improve strategy, manage reputation and public relations and improve engagement with key stakeholders.
Metrion Biosciences is a UK-based specialist provider of high quality ion channel drug discovery services, serving pharma companies and biotechs who are looking to develop novel drugs. Metrion provides two main services: 1) cardiac safety screening where all drug candidates must be assessed for potential adverse effects, including the risk of heart attack; and 2) support services to pharma/biotechs developing new medicines which specifically target ion channels.
| Strategic report | |
|---|---|
| Financial highlights | 2 |
| Performance summary | 3 |
| Chairman's statement | 4 |
| Manager's review | 8 |
| Investments in the year | 12 |
| Realisations in the year | 13 |
| Ten largest investments | 14 |
| Principal risks and uncertainties | 18 |
| Sustainable investing | 20 |
| Other matters | 25 |
| Directors' duties | 30 |
| Directors' report | |
| Board of Directors | 36 |
| Directors' report | 37 |
| Corporate governance | 40 |
| Audit & Risk Committee report | 47 |
| Nomination Committee report | 49 |
| Directors' remuneration report | 51 |
| Statement of Directors' responsibilities | 55 |
| BDO independent auditor's report | 56 |
| Financial statements | |
| Income statement | 62 |
| Statement of changes in equity | 63 |
| Balance sheet | 64 |
| Statement of cash flows | 65 |
| Notes to the financial statements | 66 |
| Appendices | |
| Investment policy | 79 |
| Dividend history in the last ten years | 80 |
| Dividends paid since launch | 80 |
| Performance record since launch | 81 |
| Cash returned to shareholders | 81 |
| Full investment portfolio | 82 |
| Glossary | 84 |
| Information | |
| Shareholder information and contact details | 86 |
| Corporate information | 89 |
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.
The chart below shows the cash returned to shareholders based on the subscription price and the income tax reclaimed on subscription.
*includes proposed final dividend of 3.5p.
Pence per share
The Board is pleased to report that the Company has continued to make new investments despite the disruption of COVID-19 and has invested a total of £17 million in 15 companies over the year. Further details of the new investments made are included in the Manager's review. The new investments in earlier stage opportunities may result in greater volatility in returns from the Company over time. However, the more mature, established portfolio of existing investments should assist in sustaining returns and dividends for shareholders as the new portfolio develops and grows. In addition to the number of holdings, the portfolio is well diversified by sector, with a tilt towards technology, healthcare, and to recurring revenue business models.
There have been several realisations from both the unquoted and quoted portfolio during the year, reflecting the Manager's continued focus on driving liquidity in the portfolio to create realised capital profits to fund current and future dividends for shareholders. For example, the sale of Pho, in the unquoted portfolio, delivered total proceeds of £5.9 million for a gross money multiple of 2.5x cost. The Manager also realised its investment in Wey Education, in the quoted portfolio, which delivered proceeds of £7.1 million for a total gross money multiple of 13.6x cost. The Manager has made a select number of profitable partial realisations of Cerillion plc during the year, resulting in the receipt of proceeds of £3.1 million at an aggregate of 5.6x original invested cost in this listed company. The Company's investment into unquoted Storyshare Holdings was also rolled into Evotix, a much larger business, in July 2021, to build critical mass and improve the future returns prospects, given that the investment is currently being held at 0.4x cost.
The Board was supportive of the acquisition by Gresham House plc of the VCT business of Mobeus Equity Partners LLP in September 2021. This acquisition enhances Gresham House's position within the VCT market, increasing the funds under management across its VCT range to approximately £850 million as at 30 September. The existing Gresham House VCT team is now working alongside the newly acquired Mobeus VCT team in managing the Company's portfolio and the Board is pleased with the progress made thus far in relation to the integration of the two teams.
The acquisition enlarges the Gresham House VCT team significantly and the Board believes that the combined platform will enhance the Manager's ability to identify and manage attractive early-stage investments. This is expected to benefit the Company through more consistent and increased rates of unquoted investment which will ultimately support the delivery of attractive long-term performance for the Company's shareholders.
The Board is pleased to declare a final dividend of 3.5p per share for the year to 30 September 2021, payable on 4 March 2022. This is in addition to the 3.0p interim dividend paid in September and means that the total dividends for the year are 6.5p. This is a 9.3 per cent yield based on the opening NAV per share of 70.2p and is above the target policy of 7 per cent of the NAV per share at the start of the year.
The Company has good levels of realised reserves available to fund future dividends and the Manager continues to focus on selling investments and generating realised profits across the portfolio, which help to sustain the payment of dividends.
Environmental, social and governance analysis is embedded into the Company's investment processes by the Manager in order to build and protect long-term value for investors. A framework based on ten key ESG themes is used to analyse, monitor and report on ESG risks and opportunities across the lifecycle of investments. Further information in relation to the Manager's integration of ESG factors in management of the Company's portfolio is set out on pages 20 to 24 of the Strategic Report. Your Board is particularly pleased to note the focus of Gresham House in this area, with the addition of two new ESG and sustainability team members to work alongside the Sustainable Investment Director, Rebecca Craddock-Taylor.
In August 2021, 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, in November 2021 the Company launched an offer for subscription to raise £25 million (before costs) with an additional £12.5 million over-allotment facility available as required. As at the date of this statement there has been £15.5 million invested by shareholders and the offer remains open until 29 March 2022 unless filled earlier. We would like to thank existing shareholders for their continued support and to welcome new shareholders.
The Company's last AGM was held as a hybrid meeting on 16 February 2021, due to government restrictions on public gatherings at that time. This year, pending any future changes in restrictions, we look forward to holding an AGM in person at 11.00am on
Sarah Fromson Chairman
After the significant volatility seen in public markets during the first months of 2020, we have seen excellent performance from our AIM-traded investments in the year to 30 September 2021. The unquoted portfolio has also performed well, led by investments in software and technology enabled services companies as well as by a recovery in the value of the multisite restaurant businesses.
Pence per ordinary
| share |
|---|
| 70.2 |
| Valuation increase (29.3 per cent) 20.6 |
| 90.8 |
| (3.0) |
| (3.5) |
| Illustrative NAV as at 30 September 84.3 |
At 30 September 2021, the Company's direct investment portfolio was valued at £162 million and comprised investments in a total of 82 companies of which 37 are unquoted and 45 are quoted companies. The Company's direct investments in the LF Gresham House UK Micro Cap Fund ("Micro Cap"), LF Gresham House UK Multi Cap Income Fund ("Multi Cap") and in the LF Gresham House UK Smaller Companies Fund ("Small Cap") were valued at £49 million at 30 September 2021. These investments provide further diversity, giving investment exposure to an additional 98 AIM-traded and fully listed companies and thus spreading investment risk across some 180 portfolio companies.
During the 12 months to 30 September 2021, the underlying value of the unquoted portfolio increased by 28 per cent, reflecting the continued strong performance of the majority of investments. The portfolio of directly held AIM investments increased by 52 per cent during the year, recovering significantly from the early impact of the COVID-19 pandemic on public markets.
Our Micro Cap fund delivered a return of 46 per cent, and our Small Cap fund returned 60 per cent, compared to the IA UK Smaller Companies Sector which increased by 51 per cent. The Multi Cap Income fund increased by 33 per cent compared to the IA UK Equity Income Sector that rose by 33 per cent for the 12 months to 30 September 2021.
The strong uplift in the value of the AIM traded holdings emphasises the benefits of having a portfolio with both private unquoted and publicly listed companies. Over the long-term, the return profiles of the quoted and unquoted portfolios have proved complementary, with both asset classes delivering robust performances.
The Chairman's statement forms part of the strategic report.
Graham was appointed at the Company's AGM in February 2021 and brings extensive private equity experience and market knowledge to our Company.
Although the UK has been efficient in its vaccination program, the COVID-19 pandemic continues to impact us all. We continue to monitor developments and any potential impact on the portfolio but are encouraged by the level of resilience already demonstrated by our investee companies and also by our key service providers.
The disruption and market dislocation has also provided, and will keep on providing, investment opportunities and the Manager remains focused on investing in businesses with strong fundamental characteristics which should continue to grow consistently throughout the economic cycle.
Overall, the economy has rebounded strongly following the sharp decline in activity and fall in public markets immediately after the first national lockdown in March 2020. However, the ongoing recovery continues to be uneven as the UK government's COVID-19 support packages are progressively withdrawn and inflationary and supply chain pressures flow through the economy. The Manager anticipates this will lead to increased public market volatility and, in some sectors reliant on physical goods, more uncertainty over the deliverability of short-term sales forecasts. Operating margin pressure due to wage inflation is also expected.
Despite the potential economic headwinds, the Board continues to believe it is a good time to be investing in earlier stage, innovative and high growth potential businesses looking to take advantage of changes in consumer behaviour and the disruption of traditional supply chains being driven by technology. The level of
interesting investment opportunities being reviewed by the Manager continues to be strong. As the earlier stage portfolio continues to mature, there is also an increase in existing high potential portfolio companies looking for follow-on capital to support future growth.
6 December 2021
16 February 2022 at Saddlers' Hall, 40 Gutter Lane, London, EC2V 6BR. As usual I will present my own review of the year and will then be joined by the Manager. We would be delighted if you would join us for light refreshments afterwards.
For any shareholders that do not wish to attend in person, we will be live streaming the AGM and Manager's presentation. Registration details for the live stream will be included in the Notice of AGM. Voting will not be available via the online streaming service and we encourage shareholders to exercise their votes by submitting their proxy electronically or by post. The Directors appreciate the engagement with shareholders that takes place at the AGM and encourage shareholders to submit any questions to the Board in advance of the meeting. Shareholders can submit questions up until noon on 15 February 2022 in the following ways:
The Audit & Risk Committee has considered the external audit arrangements and held an audit tender process in early 2021. Following the conclusion of this process, the Audit & Risk Committee has appointed BDO LLP as the Company's auditor and KPMG LLP has retired with effect from 28 May 2021.
We have welcomed a new director to the Board this year, Graham McDonald.
The Chairman's statement forms part of the Strategic Report.
The Company's investment strategy is primarily focused on companies operating in parts of the economy that we believe are benefiting from long-term structural growth trends and in sectors where we have deep expertise and network. The amount of capital invested in each business is matched to the scale, maturity and underlying risk profile of the company seeking investment.
During the year, £17.1 million was invested in 15 companies including ten new additions to the portfolio and five follow-on investments. Below are descriptions of some of the new investments made;
developed an Artificial Intelligence ("AI") platform using advanced behavioural analytics to deliver tailored promotions to consumers, Scurri provides a cloud-based logistics management platform, and Patchworks provides integration software to the multiple operational systems used by e-commerce businesses.
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Three new quoted investments were completed during the year. These companies also operate in our core investment focus areas of niche software and pharmaceutical outsourced service providers. Crimson Tide plc provides a field service management software platform and service; Crossword Cybersecurity plc sources and develops academic ideas into commercial cyber security products and services; and Deepverge plc is a software tool that joins technology platforms with partners in AI, clinical research, medical devices, life
science and environmental science.
The Company made additional investments into five existing portfolio companies, one quoted and four unquoted, across the year. This is consistent with the investment strategy of continuing to back our high potential assets with further capital to support future growth. We anticipate the level of follow-on investment will continue to grow as the earlier stage portfolio continues to mature.
The unquoted portfolio has performed well during the year, increasing in value by 28 per cent. There has been ongoing disruption due to COVID-19, particularly affecting our multi-site nursery chain, travel businesses and casual dining restaurants, driven by the national lockdowns and social distancing requirements. However revenues have bounced back strongly since the economy reopened. In aggregate, we have seen consistently robust performance in our technology, healthcare and services companies within the portfolio, especially those with recurring or contracted revenue business models with good visibility over future revenues and cashflows.
As Manager we remain highly engaged with the management teams within the portfolio, sharing insight and best practice to help them both manage risk and spot opportunities in a quickly changing environment. We have continued to invest in our in-house talent and technology functions to support our portfolio companies, which alongside our extensive network of earlier stage, high growth company experts, ensure we are well positioned to help our portfolio companies develop and scale.
This year has seen a strong overall performance from the investment portfolio despite continued uncertainty caused by COVID-19. The portfolio is well diversified, with exposure to 180 quoted and unquoted companies, and has delivered an increase in net asset value of 29.3 per cent over the year.
The net assets of £248 million were invested as follows:
| Asset class | NAV (£m) |
% of NAV* |
Number of investees** |
% return in the year*** |
|---|---|---|---|---|
| Unquoted | 60 | 24 | 37 | 28 |
| AIM-traded companies | 102 | 41 | 45 | 52 |
| LF Gresham House UK Micro Cap Fund | 34 | 14 | 51 | 46 |
| LF Gresham House UK Multi Cap Income Fund | 9 | 4 | 47 | 33 |
| LF Gresham House UK Smaller Companies Fund | 6 | 2 | 49 | 60 |
| Liquid assets# | 37 | 15 | N/A | – |
| Total | 248 | 100 | 229 | – |
* By value as at 30 September 2021.
** Includes investee companies with holdings by more than one fund. Total number of individual companies held is 180.
*** Return includes interest received on unquoted realisations during the year.
# Represents cash, OEICs and net current assets.
The tables on pages 12 and 13 show the breakdown of new investments and realisations over the course of the year and below is a commentary on the key highlights in both the unquoted and quoted portfolios.
Bevan Duncan Fund Manager Managing Director, Strategic Equity
Ken Wotton
Fund Manager Managing Director, Public Equity
Tania Hayes Finance Director, VCTs
Andrew Hampshire Chief Operating Officer
which was significantly impacted by COVID-19; and Rosslyn Data Technologies which underperformed market expectations although we remain positive about the long term opportunity as it evolves its management team and go-to-market strategy with support from the Manager.
We closely monitor our AIM portfolio with a rolling programme of independent reviews of the most significant AIM holdings and continue to be positive on the long-term investment prospects of these companies. Many of the larger quoted investments have been long-term holdings. These companies are typically profitable, cash generative businesses with low levels of financial gearing and continue to have attractive long-term growth prospects.
Proceeds totalled £10.9 million during the year following two full and one partial realisation. Collagen Solutions was fully realised following a takeover by Rosen's Diversified, returning 1.3x cost in November 2020. The Company's investment in Wey Education was also fully realised following a takeover by Inspired Education Holdings, a private equity backed trade buyer, returning 13.6x cost, the highest money multiple return in the history of the Trust, and delivering proceeds of £7.1 million. The opportunity to crystallise some profits was taken for Cerillion plc; over the course of the year proceeds of £3.1 million were realised at 5.6x cost.
The Manager believes that the Company's investments in the LF Gresham House UK Micro Cap Fund ("Micro Cap"), LF Gresham House UK Multi Cap Income Fund ("Multi Cap"), and LF Gresham House UK Smaller Companies Fund ("Small Cap") are a core component of the Company's portfolio construction. These investments provide shareholders with additional diversification through exposure to an additional 98 underlying companies, as well as access to the
potential returns available from a larger and more established group of companies that fall within the Manager's core area of expertise.
Over the year, Micro Cap delivered a 46 per cent return, Multi Cap delivered 33 per cent and the Small Cap fund delivered 60 per cent.
Micro Cap and Multi Cap are both highly rated by independent ratings agencies. Each fund has performed well on an absolute basis during the year and has performed in line with its respective peer group. Micro Cap's long term cumulative performance has been consistently top quartile within the IA UK Smaller Companies sector and it is the sixth best performing fund over the past 10 years. Multi Cap has been the top performing fund within the IA UK Equity Income sector over three years and since launch in June 2017. Small Cap has also achieved top quartile cumulative performance since launch in 2019, and once it has a three-year track record it will be marketed externally.
The Company had cash and liquidity OEICs of approximately £38.7 million at the year-end. This asset class is conservatively managed to take minimal or no capital risk.
The Manager has continued to invest in its sustainable investment team, with the addition of two new members during the year. The first ESG survey of our unquoted portfolio companies was completed during the year. The survey identified common challenges across the portfolio as well as establishing benchmark metrics for future development and reporting. Further details on our ESG approach and policies can be found on pages 20 to 24 in the strategic report.
Despite the economic and social challenges over the past 12 months, the opportunity to invest and support
growth in entrepreneurial earlier-stage UK businesses remains strong. Our focus on investing in parts of the economy which are experiencing structural growth and in sectors where we have extensive talent networks and domain expertise continues to identify attractive investment opportunities. Many of our management teams are innovating to accelerate growth and take advantage of the changes and disruption across the market. We expect the rate of follow-on investment to increase across the portfolio as these companies scale and require additional capital to realise their growth plans.
As expected, several parts of the portfolio have faced trading headwinds. Demand within our consumer travel and several other service-based businesses remain impacted by the shift in consumer and corporate spending driven by COVID-19. In certain sectors, we expect more variability in company trading and a general increase in wage inflation and supply chain disruption going forward. However, the portfolio continues to be highly diversified and overall is defensively positioned.
Following the integration of the Mobeus VCT team during October 2021, the deal team consists of over 20 investment professionals. Significant investment has also been made to strengthen our in-house talent and technology capability to help convert new deal opportunities and to add value to our portfolio companies post investment. We remain extremely positive in the ability of more agile, fast moving earlier stage companies to outperform in an uncertain economic environment and in our ability to invest capital and deliver attractive long-term returns for the Company.
6 December 2021
The Company successfully realised its investment in Pho in August 2021, delivering £5.9 million in proceeds and an initial investment return of 2.5x1 . The deal includes an earn-out structure that could increase the total deal return to an estimated 3.0x1 original invested cost. Pho is a casual dining restaurant chain serving Vietnamese street food, and although it was significantly affected by the government restrictions during the COVID-19 pandemic, its differentiated consumer proposition and rapidly growing sales in the home delivery channel resulted in a strong trading recovery. The Company also successfully realised its investment in Ten10 in October 2020, delivering proceeds of £7.3 million and an overall investment return of 3.7x1 .
During the year, the Company also rolled its investment in Storyshare Holdings Limited into Evotix Limited. The Storyshare product integrates well with the Evotix offering and we believe that customer synergies and the larger SHE business will enhance investment return prospects for the Company's shareholders, as this investment is currently being held at 0.4x1 cost.
The quoted portfolio has performed exceptionally well, increasing 52 per cent over the course of the year. This was driven by the larger and more established AIM holdings, with particular emphasis on those in
resilient parts of the market where their businesses benefited from trends such as digital transformation that have been accelerated by the pandemic. Significant positive contributions came from: Cerillion, driven by robust results and forecast upgrades during the year underpinned by new business; Netcall, as revenue growth accelerated and earnings quality improved due to an increasing proportion of contracted recurring income; and Ideagen, which re-rated positively due to strong resilient earnings and increased scale in its recurring revenue base.
Detractors from performance were: LoopUp, due to earnings underperforming market expectations; Cloudcall Group, a telephony software provider to the recruitment sector
| Company | First investment date |
Original book cost# £'000 |
Proceeds† £'000 |
Overall multiple return |
|
|---|---|---|---|---|---|
| Unquoted realisations | |||||
| Ten10 Group Ltd | Full trade sale | Feb 15 | 2,331 | 7,254 | 3.7* |
| Pho Holdings Ltd | Full trade sale | Jul 12 | 2,422 | 5,902 | 2.5* |
| Total unquoted realisations | 4,753 | 13,156 | 2.8* | ||
| AIM-traded realisations | |||||
| Wey Education plc | Takeover | Dec 15 | 523 | 7,091 | 13.6 |
| Cerillion plc | Market sale | Jul 15 | 564 | 3,139 | 5.6 |
| Collagen Solutions plc | Takeover | Mar 17 | 551 | 716 | 1.3 |
| Total AIM-traded realisations | 1,638 | 10,946 | 6.7 | ||
| Total realisations in the year | 6,391 | 24,102 | 3.8 |
# Residual book cost at realisation date.
* Includes interest/dividends received, loan note redemptions and partial realisations accounted for in prior periods.
† Proceeds at time of realisation including interest.
| Book cost | ||||
|---|---|---|---|---|
| Company | Location | Sector | Activity | £'000 |
| Unquoted investments | ||||
| New | ||||
| eConsult Ltd | Surrey | Healthcare & Education Online consultation provider used by GP practices and hospitals |
2,599 | |
| Scurri Web Services Ltd | London | Technology | Cloud-based delivery management platform |
2,293 |
| Patchworks Ltd | Nottingham | Technology | Leading integration platform for fast-growing retail and ecommerce businesses |
1,716 |
| Airfinity Ltd | London | Healthcare & Education Provides real time life science intelligence as a subscription service |
1,559 | |
| Metrion Biosciences Ltd | Cambridge | Healthcare & Education Ion channel drug discovery and safety assessment services provider |
1,192 | |
| Counting Ltd | London | Business Services | Banking and accounting software for small businesses |
1,059 |
| RevLifter Ltd | London | Technology | A-I platform using advanced behavioural analytics to deliver tailored promotions to users |
779 |
| Follow-on | ||||
| Glisser Ltd | London | Business Services | Audience engagement software | 795 |
| TravelLocal Ltd | London | Consumer Markets | Online travel agent specialising in tailor-made holidays |
530 |
| Equipsme (Holdings) Ltd | London | Business Services | SME health insurance plans provider | 370 |
| Munnypot Ltd | West Sussex | Technology | Automated online investment platform | 16 |
| Total unquoted investments | 12,908 | |||
| AIM-traded investments | ||||
| New | ||||
| Deepverge plc | York | Healthcare & Education Environmental and life sciences group | 1,590 | |
| Crossword Cybersecurity plc | London | Technology | Commercialisation of university research-based cyber security software and consulting |
1,282 |
| Crimson Tide plc | Kent | Technology | Mobile business solutions | 668 |
| Follow-on | ||||
| CloudCall Group plc | Leicester | Technology | Provides cloud software and integrated communications services |
606 |
Total AIM-traded investments 4,146 Total investments in the year 17,054
Netcall is a provider of intelligent automation and customer engagement software, helping organisations to become more customer-centric. Solutions are focused on enabling customer contact across multiple channels and improving customer satisfaction whilst driving operational efficiency through increased process automation. Netcall has over 700 customers, spanning enterprise, healthcare and government sectors.
First investment: July 2010 Total original cost: £4,354,000* Total equity held: 23.9%
Original cost: £2,616,000 Valuation: £12,869,000 Valuation basis: Bid Price Income recognised in the year: £37,000 % of equity held: 9.9% Voting rights: 9.9%
| 2021 | 2020 | |
|---|---|---|
| £ million | £ million | |
| Sales: | 27.2 | 25.1 |
| Pre-tax profits: | 1.0 | 0.5 |
| Net Assets: | 24.6 | 22.9 |
| No. of Employees: | 235 | 234 |
Source: Netcall plc, Annual Report and Accounts, 30 June 2021 * Includes Baronsmead VCTs only
Ideagen plc Nottinghamshire Quoted www.ideagen.com
Ideagen is a governance, risk management and compliance ("GRC") software and solutions provider, serving highly regulated industries such as life sciences, healthcare, banking and finance and insurance, helping to reduce corporate risks and ensure operational discipline. Since the Baronsmead VCTs invested, the company has successfully executed a buyand build strategy in the GRC software market to add capability and build its market leadership.
First investment: January 2013 Total original cost: £1,309,000 Total equity held: 1.9%
Original cost: £720,000 Valuation: £8,422,000 Valuation basis: Bid Price Income recognised in the year: £9,000 % of equity held: 1.0% Voting rights: 1.0%
| 2021 | 2020 |
|---|---|
| £ million | £ million |
| 65.6 | 56.6 |
| 0.8 | (0.1) |
| 125.6 | 76.9 |
| 612 | 537 |
Source: Ideagen plc, Annual Report and Accounts, 30 April 2021
4
The top ten investments by current value at 30 September 2021 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 may be 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 companies. 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 relate to investment structures rather than operating performance.
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. Following several acquisitions, Carousel now has a pan-European presence, which has supported strong revenue growth since investment in 2013.
First investment: October 2013 Total original cost: £4,246,000 Total equity held: 26.7%
Original cost: £2,336,000 Valuation: £10,699,000 Valuation basis: Earnings Multiple Income recognised in the year: £210,000 % of equity held: 14.7% Voting rights: 14.7%
| 2020 | 2019 | |
|---|---|---|
| £ million | £ million | |
| Sales: | 51.3 | 51.6 |
| Pre-tax profits: | (0.3) | (2.3) |
| Net Assets: | (5.6) | (6.4) |
| No. of Employees: | 225 | 283 |
Source: Carousel Logistics Holdings Limited, Annual Report and Financial Statement 31 December 2020
Quoted www.cerillion.com
Cerillion provides billing, charging and CRM software solutions, predominantly to the telecommunications sector but also to other sectors, including finance and utilities. Cerillion has c.80 customer installations across c.45 countries, delivering a broad range of cloud solutions, managed services and on-premise enterprise software.
All funds managed by Gresham House First investment: July 2015 Total original cost: £2,974,000 Total equity held: 13.3%
Cerillion plc London 1
Original cost: £1,636,000 Valuation: £16,572,000 Valuation basis: Bid Price Income recognised in the year: £134,000 % of equity held: 7.3% Voting rights: 7.3%
| 2020 | 2019 | ||
|---|---|---|---|
| £ million | £ million | ||
| Sales: | 20.8 | 18.8 | |
| Pre-tax profits: | 2.6 | 2.4 | |
| Net Assets: | 16.0 | 15.5 | |
| No. of Employees: | 235 | 203 |
Source: Cerillion plc, Annual Report and Accounts 30 September 2020
IDOX plc Reading Quoted www.idoxgroup.com
IDOX provides legislative compliance and document process management software, in a variety of cloud and on-premise applications, for local governments and the NHS. Additionally, IDOX delivers document collaboration software for the oil & gas, energy and infrastructure sectors, enabling accurate record keeping for project management. IDOX's solutions seek to deliver process automation to support enhanced citizen and customer experience, improved operational efficiency and reduced overheads.
First investment: May 2002 Total original cost: £1,642,000* Total equity held: 4.9%
Original cost: £1,028,000 Valuation: £7,753,000 Valuation basis: Traded price Income recognised in the year: £33,000 % of equity held: 2.5% Voting rights: 2.5%
| 2020 | 2019 | |
|---|---|---|
| £ million | £ million | |
| Sales: | 68.0 | 65.5 |
| Pre-tax profits: | 2.7 | (0.0) |
| Net Assets: | 47.0 | 44.6 |
| No. of Employees: | 637 | 671 |
Source: IDOX plc, Annual Report and Accounts, 31 October 2020
* Includes Baronsmead VCTs only
5
Inspired is a consultancy business providing energy procurement, management and advisory services to optimise energy usage and more broadly measure and manage ESG impact. The Baronsmead VCTs first invested as a cornerstone investor in the 2011 IPO and since then Inspired has grown revenues by more than 16x. Growth is underpinned by structural tailwinds in the market, as increasingly corporates are required to monitor, report on and manage energy consumption and other ESG risks.
Inspired plc Lancashire Quoted www.inspiredplc.co.uk 8
First investment: November 2011 Total original cost: £1,435,000* Total equity held: 19.8%
Original cost: £861,000 Valuation: £4,872,000 Valuation basis: Bid Price Income recognised in the year: £60,000 % of equity held: 2.8% Voting rights: 2.8%
| 2020 | 2019 | |
|---|---|---|
| £ million | £ million | |
| Sales: | 46.1 | 43.7 |
| Pre-tax profits: | (4.5) | 3.1 |
| Net Assets: | 66.3 | 59.3 |
| No. of Employees: | 521 | 423 |
Source: Inspired Energy plc, Annual Report and Accounts 2020 * Includes Baronsmead VCTs only
Anpario is an international manufacturer and distributor of natural animal feed additives for animal health, nutrition and biosecurity. The products are designed to boost growth and improve the health of the animals which they feed. Sales growth is underpinned by both the increasing global demand for meat, and hence animal feed, as well as the trend towards organic foods and healthy eating.
Anpario plc Nottinghamshire Quoted www.anpario.com 7
First investment: November 2006 Total original cost: £966,000 Total equity held: 6.0%
Original cost: £662,000 Valuation: £5,561,000 Valuation basis: Bid Price Income recognised in the year: £86,000 % of equity held: 4.1% Voting rights: 4.1%
| 2020 | 2019 | |
|---|---|---|
| £ million | £ million | |
| Sales: | 30.5 | 29.0 |
| Pre-tax profits: | 5.4 | 4.4 |
| Net Assets: | 37.5 | 35.6 |
| No. of Employees: | 120 | 114 |
Source: Anpario plc, Annual Report 31 December 2020
Jersey Unquoted www.iwpuk.co.uk
IWP is a leading national independent financial advisory business which was founded in 2019 shortly before the Baronsmead VCTs invested. The VCTs' investment provided the business with growth capital to establish the central platform, enable the hiring of key management team members and to establish its integrated investment management practice. The company has grown significantly since investment and now serves clients throughout the UK, with growth driven by organic client growth and via acquisitions.
Original cost: £1,587,000 Valuation: £5,679,000 Valuation basis: Earnings Multiple Income recognised in the year: £nil % of equity held: 4.2% Voting rights: 6.4%
A full set of accounts is not publicly available as the company is registered in Jersey.
IWP has a network of 24 IFA businesses and has a turnover of c. £24 million (year ended 31 March 2021).
6
Bioventix plc Surrey Quoted www.bioventix.com
Bioventix manufactures and supplies high affinity sheep monoclonal antibodies for use in immunodiagnostics. Focusing on clinical diagnostics, the company's strategy is to identify new assays for which there is a need for improved antibodies. Since the Baronsmead VCTs first invested in 2013, the company has more than tripled its revenues and quadrupled profits.
First investment: June 2013 Total original cost: £562,000* Total equity held: 4.9%
Original cost: £309,000 Valuation: £4,594,000 Valuation basis: Bid Price Income recognised in the year: £174,000 % of equity held: 2.3% Voting rights: 2.3%
| 2021 | 2020 | |
|---|---|---|
| £ million | £ million | |
| Sales: | 10.9 | 10.3 |
| Pre-tax profits: | 8.1 | 8.2 |
| Net Assets: | 11.8 | 12.5 |
| No. of Employees: | 17 | 16 |
Source: Bioventix plc, Annual Report and Financial Statements 30 June 2021 * Includes Baronsmead VCTs only
9
Happy Days is a leading child day care and early years education provider operating from 18 settings across the South West. The business focusses on delivering outstanding quality childcare in premium settings within its target geographic markets.
We are currently carrying this investment at 0.8x cost, reflecting the fact that large parts of the nursery estate have experienced full or partial closures due to lockdown and social distancing restrictions introduced following the outbreak of COVID-19 last year. However, occupancy levels and trading have subsequently bounced back ahead of expectations.
Happy Days Ltd Cornwall Unquoted www.happydaysnurseries.com 10
First investment: April 2012 Total original cost: £7,600,000 Total equity held: 64.9%
Original cost: £4,180,000 Valuation: £3,510,000 Valuation basis: Earnings Multiple Income recognised in the year: £nil % of equity held: 35.7% Voting rights: 30.8%
| 2020 | 2019 | |
|---|---|---|
| £ million | £ million | |
| Sales: | 8.9 | 11.1 |
| Pre-tax profits: | (3.0) | (1.3) |
| Net Assets: | (12.7) | (9.7) |
| No. of Employees: | 386 | 393 |
Source: H. Days Holdings Limited 31 December 2020
The Board has carried out a robust assessment of the principal and emerging risks and uncertainties facing the Company and has assessed the appropriate measures to be taken in order to mitigate these risks as far as practicable. There is an ongoing process for identifying, evaluating and managing these risks which is part of the governance framework detailed further in the Corporate Governance section of this report.
The Board maintains a safety margin on all VCT tests to ensure that breaches are 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 review the tests on a bi-annual basis and report to the Audit & Risk 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 Investment Management team has a strong and consistent track record over a long period. The Investment Manager undertakes extensive due diligence procedures on every new investment and reviews the portfolio composition maintaining a wide spread of holdings in terms of financing stage and industry sector.
In light of the COVID-19 pandemic, the Investment Manager has undertaken a thorough risk review of the portfolio companies which has been reviewed by the Board. This has highlighted the uneven recovery across different sectors, with many businesses facing inflationary and supply chain pressures. The Investment Manager has engaged with management teams to develop plans to
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 Investment Manager uses a limited amount of bank gearing in its investments which enables its investments to continue trading through difficult economic conditions. The Board monitors and reviews the position of the Company, ensuring that adequate cash balances exist to allow flexibility. The Board reviews the make up and progress of the portfolio each quarter to ensure that it remains appropriately diversified and funded.
| Principal Risk | Context | Specific risks we face face |
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 its 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 could result in a cessation of the tax reliefs for VCT investors or changes to the reliefs that would 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. The COVID-19 pandemic continues to have a significant impact on the performance of the consumer markets sector in particular, with an uneven recovery across all other sectors. |
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. |
mitigate the impact of these pressures. |
| Economic, political and other external factors |
Whilst the Company invests in predominantly UK businesses, the UK economy 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 impact of leaving the European Union remains uncertain. The risks posed by the ongoing COVID-19 pandemic impact on all the economic, political and other external factors the Company faces. |
Events such as fiscal policy changes, Brexit, 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 buy backs and may limit its ability to pay dividends. |
|
| Regulatory and 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 FCA 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 FCA 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. |
|
| Operational | The Company relies on a number of third parties, in particular the 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, including a cyber attack, 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. A cyber attack or data breach could lead to loss of sensitive shareholder data resulting in a breach and liability under the General Data Protection Regulation. |
changes in key personnel or ownership. |
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 is compliant.
The Company Secretary provides a regulatory update at each Board meeting.
The Board has appointed an Audit & Risk Committee, which reviews 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 and matters relating to cyber security. 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 have been any
The operational requirements of the Company, including from its service providers, have been subject to rigorous testing (including remote working and virtual meetings) as to their application during the COVID-19 pandemic, where increased use of out-of-office working and online communication continues to be required. To date, the operational arrangements have proven robust.
The Company is facing the key emerging risks of climate change and ESG, given the regulatory, operational and potentially reputational implications if not appropriately addressed. In order to address these emerging risks, when looking to make a new investment, the Manager uses an ESG Decision Tool to identify any material ESG risks that need to be managed and mitigated. For further detail, see pages 20 to 24.
The Board considers the COVID-19 pandemic and Brexit to be factors which exacerbate existing risks, rather than new emerging risks. Their impact is considered within the relevant risks below.
The financial risks faced by the Company are covered within the Notes to the Financial Statements on pages 66 to 78.
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. Since the Company does not have any employees and it has no direct impact on the community or the environment due to its status as a VCT, the Company does not maintain specific policies in relation to these matters.
However, the Board is conscious of the potential impact of its investments on the environment as well as its social and corporate governance responsibilities. The Board and the Manager believe that sustainable investment involves the integration of ESG factors within the investment process and that these factors should be considered alongside financial and strategic issues. The Company therefore complies indirectly with ESG requirements through its monitoring of the ESG impact of its investee companies.
The Manager is committed to sustainable investment as an integral part of its business strategy. During 2021, The Manager has taken further steps to formalise its approach to sustainability and has put in place several policies and processes to ensure environmental, social and governance ("ESG") factors and stewardship responsibilities are built into asset management across all funds and strategies, including venture capital trusts.
The Manager published its inaugural Sustainable Investment Report in 2021, that along with existing asset specific policies, including the Public Equity Policy and the Private Equity Policy, can be found on the Gresham House website. These reports and policies cover the Manager's sustainable investment commitments, how the investment processes meet these commitments and the application of the sustainable investment framework. The Gresham House Board and Management Committee assess adherence to the commitments in the Sustainable Investment Policies on an annual basis.
The Manager formed a Sustainable Investing Committee (SIC) at the start of 2020. It meets monthly and drives sustainability related deliverables, whilst providing a forum to share best practice, ideas and education. The Committee is chaired by the Director of Sustainable Investment and has representation from the Gresham House Management Committee, each asset division, sales and marketing.
A framework based on ten key ESG themes is used to structure analysis, monitor and report on ESG risks and opportunities across the lifecycle of investments.
The ten themes are the basis of the ESG Decision Tool which supports the investment team in implementing the commitments made in the sustainable investment policies. The ESG Decision Tool is completed as part of the due diligence process prior to investment for all VCT investments.
The Tool will not tell the Manager whether to invest or not, instead it aims to provide a rational and replicable assessment of key ESG risks which should be considered prior to investment, and to help rank the
significance of each risk. It is up to the Manager to decide whether it is sufficiently comfortable with these risks to proceed with an investment.
The Manager believes the "G" (Governance) of ESG is the most important factor in its investment processes for public and private equity. Board composition, governance, control, company culture, alignment of interests, shareholder ownership structure, remuneration policy etc. are important elements that will feed into the Manager's analysis and the company valuation.
The "E" and "S" (Environmental and Social) are assessed as risk factors during due diligence to eliminate companies that face environmental and social risks that cannot be mitigated through engagement and governance changes.
Where material ESG risks are identified, these are reviewed by the Manager and a decision on how to proceed is documented. The Manager will then proactively follow up with the investee company management team and ensure appropriate corrective and preventative action is taken and any material issues or incidents are recorded by the Manager.
The Manager has been working over the last year to better understand how well
portfolio companies understand relevant ESG risks and how they are addressing them as part of their operations.
Earlier in 2021, the Manager conducted an ESG survey on the unquoted investments to identify a baseline understanding of how portfolio companies think about ESG, and which ESG data is already being reported and monitored.
The results were analysed by the Manager's Sustainable Investment team and overlayed with a well-known sustainability materiality assessment to understand if companies were aware of the most significant ESG risks to their business types.
The Manager asked 74 questions across a range of material environmental, social and governance factors, receiving over 1,500 responses. Companies were asked to indicate the relevance of a range of material ESG factors to their business, as well as their ability to influence these factors.
To assess responses and make comparisons across the fund, the Manager segregated companies into four business models. The split of responses across each business model is shown in the chart to the right.
This is the first time the Manager has issued the ESG survey. The findings have been extremely insightful and will inform the actions the Manager takes to better manage ESG risks and opportunities across the portfolio over the next year. The Manager will then issue the survey again in 2022 to assess improvements in disclosure, understanding and action across the portfolio.
Below are some of the core findings, how they compare with the Sustainable Investment Team's best practice recommendations, and consequently the actions the investment teams will take to address any material areas of divergence.
Just under half of companies indicated that governance factors were very relevant to their business, and nearly the same proportion said that governance was an area upon which they could have a high level of impact.
Looking to specific governance factors, the Manager was encouraged to see a high level of focus on areas such as cyber security and GDPR breaches, with 80-90 per cent of responses indicating these topics were very relevant to their business.
The survey also identified several areas where improvements could be made. For example, 40 per cent of businesses said that an anti-harassment policy was very relevant to their business, while just 32 per cent suggested that measuring gender pay gap was very relevant. These areas have been identified by the Manager as material topics for all business types in the portfolio. Anti-harassment policies help prevent incidents of workplace harassment, while improving the working conditions of employees and mitigating material reputational risks that arise from incidents of harassment.
Similarly, measuring a company's gender pay gap is the first step in helping organisations to understand the size and cause of pay gaps, and identifying issues that need to be addressed. More broadly, monitoring and closing the gender pay gap benefits women and can improve attraction and retention of a diverse workforce.
The Manager is currently working with its portfolio companies to improve board packs to include greater focus on the importance of good governance. The Manager will also be creating individual company reports based on the ESG survey to highlight areas of material divergence from good governance best practice.
The story on environmental factors was almost the opposite of governance factors for most portfolio companies. Over half of companies responded that environmental factors were not relevant to their business, with just 4 per cent suggesting that they were very relevant.
The responses for the environmental questions are not well aligned with the increasing focus on the importance of companies understanding the climate related risks and opportunities inherent across their business operations. The UK government has set a roadmap towards mandatory climate-related disclosures and many companies will therefore have to disclose a Task Force on Climate-Related Financial Disclosures (TCFD) report, within which they should disclose climate-related metrics, such as carbon footprints.
A carbon footprint calculates the amount of carbon dioxide released into the atmosphere because of business activities. Just 10 per cent of portfolio companies indicated that measuring a carbon footprint was a very relevant factor for their business. The Manager regards carbon footprint measurement as a material sustainability issue that will come into sharp relief with the upcoming TCFD reporting requirements. Early adoption of carbon footprinting is an important issue for companies to understand before the requirements become mandatory.
Over the next year the Manager will run educational webinars for management teams to better understand the importance of a range of sustainability issues. Within these the Manager intends to highlight the relevance and importance of upcoming climate related regulations and subsequent requirements for companies to calculate and reduce their carbon footprint. The Manager will encourage portfolio companies to assess their carbon footprint and identify actions that can be taken to reduce the portfolio companies' impact on the environment.
Since the start of the COVID-19 pandemic, social issues have increased in priority for many companies and investors are looking to better understand the social risks and
The findings from the ESG survey will be used by the Manager to;
opportunities across their investments. The Manager was therefore pleased to see that a third of responses claimed that social topics are very relevant and that a quarter believed they had a high impact on such factors.
The results highlighted a clear focus on the importance of hiring and retaining staff, with two thirds of responses suggesting that the number of leavers was very relevant for their business. The Manager agrees that the number of leavers is an important metric that allows a business to gauge its culture as a well-defined and communicated culture, improves the retention and attraction of staff.
However, just a third of responses indicated that the percentage of the workforce that was female or ethnic minorities was very relevant to the business, with 20-25 per cent of responses saying that these areas were not relevant. The Manager regards recruiting and managing a diverse workforce as a fundamental pillar of any business as it drives a strong and inclusive culture and greater levels of innovation and business performance.
Using the results of this survey, the Manager will present each company with a profile of their responses relative to their sector and sustainability best practice and will engage with them to highlight the importance of a diverse workforce.
When the Manager presents back to management teams its findings, it intends to engage with companies in areas where it feels best practice is currently being observed, and where there is room for improvement. The Manager hopes to show a positive progression in these core ESG areas by the time of the 2022 ESG survey.
As the ESG survey was only shared with unquoted investments, the Manager has started a project to assess potential external providers who can support the analysis of relevant ESG metrics for the quoted portfolio. This
project will progress throughout the remainder of 2021 and into 2022. The outcome of this project will be to improve the monitoring of ESG metrics across the quoted portfolio and findings can then be integrated into the engagement activities of the Manager, as described below.
As an active investor, the Manager acts as a long-term steward of the assets in which it invests. Active ownership responsibilities include engagement and voting, which are used to protect and create value. The Manager will almost always take a board seat or become a board observer, which ensures sufficiently frequent levels of communication with the management team.
The Manager has published its Engagement and Voting Policy on its website, which sets out its approach and explains how integrated these activities are to its business practices and investment processes.
The Manager's investment philosophy means that it is an actively engaged shareholder. The Manager's assessments of management, board and governance form a critical part of the investment case, which necessitates that it works with companies on strategy, M&A, remuneration and related matters, from the outset of the holding period onwards. The Manager encourages an open and honest dialogue with the companies as this is an essential part of effective stewardship.
The Manager will meet face-to-face with the management team of a publicly listed company at least twice a year, and more frequently when it owns a material stake in a company. The Manager will generally work more closely with the management teams of private equity investments and meet on a more frequent basis. These meetings form the basis for the ongoing monitoring of a company's strategy,
financial performance and ESG considerations.
The Manager will usually identify and agree strategic milestones that it expects a company to deliver on over the holding period. The Manager will typically identify three or four key strategic milestones that are bespoke to the organisation and its business development, aiming to keep the directors focused and ensure continued progress.
Objectives may change over time depending on several factors, including business priorities, market forces and stakeholder considerations. Example of engagement objectives include:
The identified objectives provide a framework which forms the basis of the Manager's discussions with companies during regularly scheduled engagements.
Voting is an important part of the Manager's investment strategy and Gresham House is a signatory to the UK Stewardship Code and the Principles of Responsible Investment ('PRI').
The Manager's voting decisions are based on the course of action that will be in the best interest of the investee company and are informed various by sources including: procedures,
research, engagement with the company, discussions with other stakeholders and advisers, internal discussions and consultations, and other relevant information.
For the 12 months to 30 September 2021, the Manager was subject to votes on 2,211 issues. Of these, the Manager voted for 91.1 per cent of resolutions, against 3.3 per cent, abstained on 0.4 per cent and did not vote on 5.2 per cent.
In Q3 2021, the Manager voted on all 521 resolutions, voting for on 93.9 per cent of occasions, against on 4.6 per cent and abstaining on 1.5 per cent. Of the 24 votes against, nine were because the resolutions conflicted with the Manager's house policy, notably to vote against political donations, while the others were on M&A and liquidation issues that went against the investment teams' philosophy.
The Manager does not use any proxy voting advisory services, but will usually use proxy voting services to deliver voting decisions to the companies it invests in.
If the Manager plans to vote against the company decision, it will engage with the company in advance, explain the reasons for voting against management and look for ways to avoid that if possible. If a satisfactory outcome is not reached through this active dialogue with the company, the Manager will typically tell the company in advance of its intention to abstain or vote against management and clarify the reasons grounding such intention.
The Manager does not have a set policy defining how voting decisions should be made on specific items, but has set the following guidelines:
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 79, 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 Gresham House. The Manager has adopted a 'top-down, macro economic and sector-driven' approach to identifying and evaluating potential investment opportunities, by assessing a forward view of firstly the broader 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 policy is not to invest in any of the following areas: human cloning; arms/munitions; or adult content.
The Manager's Review on pages 8 to 11 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.
Compliance with the required VCT rules and regulations is considered when all investment decisions are made. Internally, this is monitored on a continuous basis and it is also reviewed by PricewaterhouseCooper LLP ("PwC") every six months to ensure ongoing compliance. PwC have been appointed by the Company to advise on compliance with VCT requirements, including evaluation of investment
opportunities as well as appropriate and regular review of the portfolio. Although PwC works closely with the Manager, it reports directly to the Board.
The principal tests are summarised below. Throughout the year ended 30 September 2021 and at the date of this report, the Company continued to meet these tests.
priority return before profits accrue to the VCT incentive scheme.
accrues to the ordinary shares, hence this additional limb to create a hurdle described below. The cut off to define a "permanent equity" investment is one where permanent equity is greater than 25 per cent of the total or where permanent equity is greater than £250,000.
Prior to January 2017, executives participating in the VCT incentive scheme subscribed jointly for a proportion (12 per cent) of the ordinary shares (but not the prior ranking financial instruments) 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. With effect from January 2017, an additional limb was added to the VCT incentive scheme to accommodate the increasing number of "permanent equity" investments being made by the Baronsmead VCTs. "Permanent equity" investments are those in which the Baronsmead VCTs hold a relatively lower proportion of prior ranking instruments (if any at all) and a higher proportion of permanent equity or ordinary shares. This means that there are fewer prior ranking instruments yielding a priority return for the Baronsmead VCTs before any gain current number of shares in issue). Appointment of the Manager The Board considers this cost to retain
Under the terms of the amended VCT incentive scheme, in circumstances where the Baronsmead VCTs hold a sufficient number of prior ranking financial instruments (a "Traditional Structure"), the terms are identical to those set out above. However, in circumstances where the Baronsmead VCTs make a "permanent equity" investment, the executives participating in the incentive scheme are required to co-invest pari passu alongside the Baronsmead VCTs for a proportion (currently 0.75 per cent) of all instruments available to the Baronsmead VCTs and they also receive an option over a further proportion (currently 12 per cent) of the ordinary shares available to the Baronsmead VCTs. The ordinary shares can only be sold and the option can
only be exercised by the scheme participants when the investment held by the Baronsmead VCTs is sold. The option exercise price has a built in hurdle rate to ensure that the options are only "in the money" if the Baronsmead VCTs achieve a good return (equivalent to the priority return they would have to achieve prior to any value accruing to the ordinary shares in a Traditional Structure).
Since the formation of the scheme in 2004, 94 executives have invested a total of £1.1 million in 79 companies. At 30 September 2021, 48 of these investments have been realised generating proceeds of £375 million for the Baronsmead VCTs and £20 million for the VCT incentive scheme. For Baronsmead Second Venture Trust, the average money multiple on these 48 realisations was 1.8x times cost. Had the VCT incentive shares been held instead by the Baronsmead VCTs, the extra return to shareholders would have been the equivalent of 3.6p a share over 17 years (based on the
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 7. The Board assesses the performance of the Manager in meeting the Company's objective against the KPIs highlighted on page 2 of the report.
The Board keeps the performance of the Manager under continual review. The Management Engagement and Remuneration Committee, comprising all Directors, conducts an annual review of the Manager's performance and makes a recommendation to the Board about its continuing appointment.
It is considered that the Manager has executed the Company's investment strategy according to the Board's expectations. Accordingly, the Directors believe that the continuing appointment of Gresham House Asset Management Limited as the Manager of the Company, on the terms agreed, is in the best interests of the Company and its Shareholders as a whole.
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 for an additional fee. 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 2021 was 2.7 per cent.
The management agreement may be terminated at any date by either party giving 12 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.
Nil performance fee is payable for the year to 30 September 2021 (2020: £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 VCT incentive 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 VCT incentive 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 VCT incentive scheme only delivers a return after each VCT has realised a priority return built into the structure. The shares held by the members of the VCT incentive 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
The Directors have also considered the Company's income and expenditure projections and find these to be realistic and sensible. The Directors have assessed the Company's ability to cover its annual running costs under several liquidity scenarios in which the value of liquid assets (including AIM-traded investments and OEICs) has been subject to sensitivity analysis. The Directors noted that under none of these scenarios was the Company unable to cover its costs.
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 2024.
The Board will decide the annual dividends each year and the level of the dividends will depend on investment performance, the level of realised returns and available liquidity. The dividend policy guidelines below are not binding and the Board retains the
ability to pay higher or lower dividends relevant to prevailing circumstances. However, the Board confirms the following two guidelines that shape its dividend policy:
setting the dividends for a financial year, a sum representing 7 per cent
The Board wishes to provide shareholders with a number of choices that enable them to utilise their investment in the Company in ways that best suit their personal investment and tax planning and in a way that treats all shareholders equally.
-
Fund raising | From time to time, the Company seeks to raise additional funds by issuing new shares at a premium to the latest published net asset value to account for costs. The Company currently has an Offer open to raise up to £25 million, with an additional £12.5 million overallotment facility available, as required.
quality people to be in the best interests of shareholders.
During the year, Gresham House Asset Management Limited received £254,000 (2020: £204,000) advisory fees, £375,000 (2020: £360,000) directors' fees for services provided to companies in the investment portfolio and incurred abort costs of £8,000 (2020: £11,000) with respect to investments attributable to the Company.
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 Association of Investment Companies Code of Corporate Governance ("AIC Code"), the Directors have assessed the prospects of the Company over the three-year period to 30 September 2024.
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 the Board require from the Manager and the estimated timeline for finding, assessing and completing investments.
In making this three-year assessment, the Board has taken the following factors into consideration:
The Board has carried out a robust assessment of the above factors, as they have the potential to threaten the Company's business model, future performance, solvency, or liquidity. This review has considered the principal risks as outlined on pages 18 and 19.
The Board also paid particular attention to the impact of the COVID-19 pandemic on the economic, regulatory and political environment as well as its direct impact upon the Company. The Board has also evaluated the ability of third party suppliers to continue to deliver services to the Company.
The Board has considered the ability of the Company to raise funds and deploy capital. Its 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, and the large listed portfolio that could be liquidated if necessary.
The Company's portfolio currently includes a large position in cash or liquid money market funds. Over the last five years, cash and liquid money market funds have averaged c.16 per cent of the NAV and reflected 16 per cent of the 30 September 2021 NAV. Cash balances can fluctuate over time due to changes in market conditions, but positive cash levels are expected to be maintained over the period. The Company has no debt, and it is expected that the Company will remain ungeared for the foreseeable future.
Details of how the Board seeks to understand the needs and priorities of these stakeholders and how these are taken into consideration during its discussions as part of its decision-making, are described in the table below:
The Board is committed to maintaining open channels of communication with shareholders and during the year has developed various meaningful ways of engaging with shareholders to understand their views. These include:
Annual General Meeting ("AGM") – The Company welcomes and encourages attendance and participation from shareholders at the AGM and values any feedback and questions it may receive. The Company successfully held its first virtual AGM on 16 February 2021. The AGM was held virtually due to government restrictions on public gatherings imposed at that time. Shareholders were invited to raise questions in advance of, during and after the AGM and the Company was delighted to answer those questions received. The Chairman presented on the Company's outlook for 2021 and a joint investment management presentation to shareholders of the Company and Baronsmead Venture Trust Plc was held on the same day.
| Stakeholder Group | Importance | Board Engagement |
|---|---|---|
| Shareholders | Continued shareholder support is critical to the sustainability of the Company and delivery of the long-term strategy of |
|
| the business. | ||
| of the AGM. | ||
| Annual Report. | ||
The Company's forthcoming AGM will take place on 16 February 2022. The Company intends to hold this AGM in person, with shareholders who are unable to attend in person given the option to watch the AGM live. It must be noted that those who participate virtually will not be able to vote during the course of the AGM and are asked to submit their votes by proxy in advance of the AGM.
Further information regarding the 2022 AGM can be found in the Chairman's Statement on pages 4 to 7 and within the Notice of AGM which is being sent to shareholders separately from this Annual Report.
Publications – The Company's Annual and Half-Yearly Reports are made available on the Company's website
(www.baronsmeadvcts.co.uk) and sent to shareholders. These publications provide shareholders with information regarding the Company's business model, strategy and investment portfolio and provide a clear understanding of the Company's financial position. This is supplemented by the monthly publication of the NAV on the Company's website and quarterly factsheets. Feedback and questions received by the Company from shareholders enables the Company to improve its reporting, which in turn helps to deliver transparent and understandable updates.
Shareholder communication and shareholder concerns – The Manager communicates with shareholders periodically and shareholders are welcome to raise any comments, issues or concerns with the Board at any time. Shareholders are invited to do so by writing to the Chairman at the registered office. Malcolm Groat, as Senior Independent Director, is also available to shareholders if they have concerns that contact through the normal channel of the Chairman has failed to resolve or for which such contact is inappropriate.
Section 172 of the Companies Act 2006 (the "Act") requires the Directors to act in good faith and in a way that is most likely to promote the success of the Company for the benefit of its shareholders.
Directors must consider the long-term consequences of any decision they make. They must also consider the interests of the various stakeholders of the Company, the impact the Company has on the environment and community, and operate in a manner which maintains their reputation for having high standards of business conduct and fair treatment between shareholders.
Fulfilling this duty naturally supports the Company in its investment objective of achieving long-term investment returns for private investors and helps ensure that all decisions are made in a responsible and sustainable way. In accordance with the requirements of the Companies (Miscellaneous Reporting) Regulations 2018, and the AIC Code, the information below explains how the Directors have individually and collectively discharged their duties under section 172.
To ensure they are aware of and understand their duties, Directors are provided with a detailed induction outlining their legal and regulatory duties as a Director of a UK public limited company upon appointment. They also receive regular regulatory updates and training as appropriate. A Company Secretarial Report is included within the papers of every Board meeting, which reminds the Directors of their duties and emphasises the importance of stakeholder consideration during decision making. Directors also receive technical updates from the Company's
advisers and from the Manager on a regular basis.
The Directors have access to the advice and services of the Company Secretary and a range of other reputable service providers and, when deemed necessary, the Directors may seek independent professional advice in the furtherance of their duties, at the Company's expense.
The Company has a Schedule of Matters Reserved for the Board which describe the Board's duties and responsibilities. Terms of Reference of the Board's Committees are in place, which outline the duties of those Committees that are delegated from the Board, including their statutory and regulatory responsibilities. Both the Schedule of Matters Reserved for the Board and the Committees' Terms of Reference are reviewed on at least an annual basis.
The Audit & Risk Committee has responsibility for the ongoing review of the Company's risk management and internal controls. To the extent that they are applicable, risks related to the matters set out in Section 172 are included within the Company's Risk Register and are subject to regular review and monitoring.
The importance of stakeholder considerations, in the context of decision making, is taken into account at every Board meeting. All discussions involve careful consideration of the longer-term consequences of any decisions and their implications for stakeholders. Further information on the role of the Board in safeguarding stakeholder interests and monitoring ongoing investment activity can be found on pages 34 to 35.
Following a comprehensive review by the Board, which regularly keeps stakeholder engagement mechanisms under review, it was agreed that, as the Company is an externally managed Venture Capital Trust and does not have any employees or customers, the Company's key stakeholders are:
External service
To function as a VCT with
The Board maintains regular contact with its external providers and receives reports from them at Board and Committee meetings, as well as outside of the regular meeting cycle. Their advice, as well as their needs and views are routinely considered. During the period, the Management Engagement and Remuneration Committee formally assessed the external service providers' performance, fees and continuing appointment to ensure that they continue to function at an acceptable level and are appropriately remunerated to deliver the expected level of service. The Audit & Risk Committee reviews and evaluates the control environments in place at each service provider as appropriate. In particular, during the COVID-19 lockdown environment the Manager and Audit & Risk Committee received confirmation that all service providers had effectively implemented their Business Continuity Plans and were able to work remotely, with no impact to the services provided to the Company or to the internal controls in place at the providers.
The Board regularly considers how it meets regulatory and statutory obligations and follows voluntary and best-practice guidance, including how any governance decisions it makes impacts the Company's stakeholders, both in the shorter and in the longer-term. In particular, the Audit & Risk Committee receives confirmation from its VCT Status Adviser regarding compliance with HMRC's VCT rules and at every Board meeting the Board is presented with a Company Secretarial Report outlining the latest governance updates to keep the Board abreast of any relevant regulatory changes. The Company Secretary reviews the Company's ongoing compliance with the AIC Code, on at least an annual basis, which informs the Company's corporate governance disclosures in the Annual Report. In addition, the Board receives reports from the Manager and Auditor on their respective regulatory compliance and any inspections or reviews that are commissioned by regulatory bodies. The Company ensures it meets all required HMRC obligations and payments promptly and as they fall due.
| Stakeholder Group | Importance | Board Engagement | providers | a premium listing on the London Stock Exchange, |
|
|---|---|---|---|---|---|
| The Manager | The Manager's performance is critical for the Company to successfully deliver its investment strategy and meet its objective to achieve long-term investment returns for private investors. |
The Board invites the Manager to attend Valuation Forums, Board meetings and Committee meetings to update Directors on the performance of the portfolio and execution of the investment strategy. The Board holds detailed discussions with the Manager on all key strategic and operational topics on an ongoing basis. In addition, the Chairman regularly meets with the Manager to ensure a close dialogue is maintained. In line with the Company's culture, the Board recognises the importance of working together with the Manager in such a way that: |
the Company relies on a diverse range of highly regarded advisers for support in meeting all relevant obligations. |
||
encourages open, honest, and collaborative discussions at all levels, allowing time and space for original and innovative thinking; |
|||||
draws on Board members' individual experience and knowledge to support and challenge the Manager in its monitoring of and HMRC and governing engagement with portfolio investee companies; bodies ensures that the impact on the Manager is fully considered and understood before any business decision is made; and ensures that any potential conflicts of interest are avoided or managed effectively. |
The Company must comply with HMRC VCT rules and |
||||
| must comply or explain its adherence to the AIC Code. HMRC and the AIC have a legitimate interest in how the Company operates in the market and treats |
|||||
| The portfolio of investee companies |
The Company invests in growth businesses, whether unquoted or traded on AIM, which are primarily based in the UK. Investments are made selectively across a range of sectors to meet the |
Day-to-day engagement with the portfolio of investee companies is undertaken by the Manager, so a transparent and objective relationship between the Board and the Manager is vital. For unquoted and larger AIM holdings the Manager is an influential and engaged shareholder (on behalf of the Company) and Manager representatives often join the boards of these companies. At each scheduled Valuation Forum, the Board receives detailed |
its shareholders. | ||
| Company's investment objectives and in accordance with VCT legislation. |
updates from the Manager covering the portfolio construction and performance, progress and trading within the underlying portfolio companies and valuation recommendations. The Board is also provided with investment pipeline reports, covering both new deals and potential follow-on investments at Board meetings. |
The Strategic Report has been approved by the Board of Directors.
On behalf of the Board
Sarah Fromson Chairman 6 December 2021
| Principal Decision | Long-Term impact | Stakeholders and Engagement |
|---|---|---|
| Providing shareholders and potential new investors the opportunity to subscribe for shares in BSVT, which in turn provides opportunities for Company growth and increased investor engagement. |
Board considered: |
|
The mechanisms for engaging with stakeholders are kept under review by the Directors and discussed at Board meetings to ensure they remain effective. Examples of the Board's principal decisions during the year, and how the Board fulfilled its duties under Section 172, and the related engagement activities, are set out below.
| Principal Decision | Long-Term impact | Stakeholders and Engagement |
|---|---|---|
| Consideration of the Company's culture, |
Establishing and maintaining a healthy |
During the reporting period, the Board considered the Company's culture, purpose and values. |
| purpose and values | corporate culture within the Company will aid delivery of its long-term strategy. |
The Company seeks to invest in innovative, high growth quoted and unquoted companies, providing capital and expertise at a critical stage of their development. The Company believes that the successful development of these companies will be crucial to the advancement of the UK economy. The Manager has an extensive entrepreneurial network and specialist skills which are utilised both to source new investment opportunities as well as to support the portfolio company management teams to deliver their growth plans. The investment strategy is based on backing the highest potential companies operating in sectors and markets which are benefiting from long-term structural growth trends, whilst recognising the risk management benefits of diversification in portfolio construction. |
| The Company has several policies in place to maintain a culture of good governance including those relating to Directors' conflicts of interest and Directors' dealings in the Company's shares. The Board assesses and monitors compliance with these policies as well as the general culture of the Board during the annual Board evaluation process which is undertaken by each Director. This is a formal internal process coordinated by the Chairman, given the small size of the Board. |
||
| Continued focus on the Manager's ESG impact |
The Board recognises that sound ESG policies, when embedded with appropriate governance and responsible business practices, help generate long-term financial performance and |
The Board has continued its focus on responsible business practices and the impact of ESG matters. The Board notes that the Manager has added to resources in this area and has significantly developed its ESG policy, its ESG investment tool and processes in the past 12 months. The Board has received a detailed presentation from the Manager's sustainable investment director on its responsible business practices and the methods used to evaluate ESG risks as part of its investment processes. |
| contribute to the wider community. |
The Board acknowledges and supports the increased focus by the Manager on ensuring new and existing investee companies are adopting sound ESG policies and will continue to monitor the Manager's progress. |
|
| Board succession planning |
Effective succession planning, leading to the refreshment of the Board and its diversity is |
The Board has approved and adopted a Tenure and Reappointment Policy (the "Policy"). In accordance with the Policy, the Board will seek to recruit a Director approximately every four years, with no Director expected to serve on the Board for longer than nine years. |
| necessary for the long-term success of the Company. |
Succession planning was a significant focus for the Board during the year ended 30 September 2021 and further detail regarding the changes to the Board during the financial year can be found in the Directors' Report on pages 36 to 39. Details of the composition of the Board can also be found in the corporate governance statement on page 43. |
Pursuant to the prospectus published by the Company on 16 September 2020 in conjunction with Baronsmead Venture Trust plc in relation to an offer for subscription to each raise up to £20 million (before costs) with an over-allotment facility to each raise up to a further £17.5 million, the Company issued a total of 40,593,158 ordinary shares in the year ended 30 September 2021 by way of five allotments, raising approximately £32.4 million. Details of these allotments are as set out below:
At the AGM held on 16 February 2021, the Company was granted authority to purchase up to 14.99 per cent of the Company's ordinary share capital in issue at that date on which the Notice of AGM was published, amounting to
40,031,296 ordinary shares. During the year, the Company bought back a total of 5,685,643 ordinary shares to be held in Treasury, representing 2.1 per cent of the issued share capital as at 30 September 2020, with an aggregate nominal value of £568,564. The total amount paid for these shares was £4,535,516. Since 30 September 2021, no shares have been bought back by the Company. The Company has remaining authority to buy back 36,441,439 shares under the resolution approved at the AGM in 2021.
During the year, the Company sold 815,000 ordinary shares from Treasury. The total amount received by the Company for these shares was £650,692. 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.
As at the date of this report, the Company's issued share capital was as follows:
| Shares | Total | % of Shares in issue |
Nominal Value |
|---|---|---|---|
| In issue | 312,059,812 | 100.00 £31,205,981.20 | |
| Held in Treasury 29,085,727 | 9.32 £2,908,572.70 | ||
| In circulation 282,974,085 | 90.68 £28,297,408.50 |
The total voting rights as at 30 September 2021 were 282,974,085 and there have been no changes to this figure between 30 September 2021 and the date of this report.
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 and 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 2021, all of which remain valid, can be found in the previous Notice of AGM.
The Company 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 paid or proposed to 30 September 2021:
| Total dividends paid for the year | 18,400 |
|---|---|
| Final dividend of 3.5p per ordinary share to be paid on 4 March 2022* |
9,904 |
| Interim dividend of 3.0p per ordinary share paid on 10 September 2021 |
8,496 |
| Dividends | £'000 |
* Calculated on shares in circulation as at 30 September 2021.
Subject to shareholder approval at the AGM on 16 February 2022, a final dividend of 3.5p per share will be paid on 4 March 2022 to shareholders on the register at 4 February 2022. The ex-dividend date will be 3 February 2022.
The AGM will be held on 16 February 2022. A separate notice convening the AGM will be posted to shareholders. The Notice will include an explanation of the items to be considered at the AGM and will be uploaded to the Company's website in due course.
The rules concerning the appointment and replacement of Directors are contained in the Company's Articles of Association and the Companies
| Sarah Fromson | Chairman and Nomination Committee Chairman |
|---|---|
| Appointed: | 1 October 2019 |
| Experience: | Sarah is Chairman of JP Morgan Global Emerging Markets Income Trust plc, as well as being a non-executive board member of Boston-based Arrowstreet Capital Partners. Sarah is also a Pension Trustee Director of Genome Research Pensions Trustee Limited and Wellcome Trust Pensions Trustee Limited. She also serves on the board of Quilter Investors Ltd, a subsidiary of Quilter plc. |
| Sarah retired from her executive role as Head of Risk at Wellcome Trust in 2019. Sarah was previously Chief Investment Risk Officer at RBS Asset Management (formerly Coutts). |
| Malcolm Groat | Senior Independent Director and Audit & Risk Committee Chairman |
|---|---|
| Shareholding: | 6,013 ordinary shares |
| He currently chairs an online medical education platform, Continulus and is a Special Advisor to a hydrogen fund, Hycap Fund. Graham is also a Director of Vedra Partners Ltd a multi-family investment office. |
|
| Experience: | Graham McDonald has spent almost forty years in banking and private equity. His previous executive role was Global Head of Private Equity and Venture Capital at Aberdeen Standard Investments. Prior to that he was responsible for the global private equity and venture capital businesses in Aberdeen Asset Management, SWIP, Lloyds bank and HBoS. |
| Appointed: | 16 February 2021 |
| Graham McDonald | Non-Executive Director |
| Shareholding: | 38,603 ordinary shares |
Appointed: 11 March 2016
Experience: Malcolm served as a Director of Baronsmead VCT 4 plc from April 2014 until the merger on 11 March 2016. He 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 executive career, Malcolm held C-suite positions with global businesses in engineering,
construction and financial services. Since 2004, he has also served as Chairman or Non-Executive Director in a number of significant businesses, currently holding chairmanships at two AIM-listed ventures Harland & Wolff Group Holdings and Tomco Energy. He is also Chairman at The Corps of Commissionaires and at Zaim Credit Systems plc.
Shareholding: 251,804 ordinary shares
| Tim Farazmand | Non-Executive Director and Management Engagement & Remuneration Committee Chairman |
|---|---|
| Appointed: | 1 May 2020 |
| Experience: | Tim has spent 30 years in private equity. His last full-time role was as a Managing Director at LDC, the private equity arm of Lloyds Bank. He previously worked for 3i Group Plc and Royal Bank of Scotland Private Equity. |
| He was Chairman of the British Venture Capital Association (BVCA) for the 2014-2015 term. He currently chairs the Palatine Impact Fund, sits on the Advisory Board of Beechbrook Capital and the boards of The Lakes Distillery and Vinoteca. |
|
| Shareholding: | 65,147 ordinary shares |
The Directors of Baronsmead Second Venture Trust plc (Reg: 04115341) present their twenty-first Annual Report and Audited Financial Statements of the Company for the year to 30 September 2021.
The Corporate Governance statement on pages 40 to 50 forms part of the Directors' report.
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 enquiries 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. The going concern assumption assumes that the Company will maintain its VCT status with HMRC.
The Directors acknowledge that the adverse impact caused by the COVID-19 outbreak globally is still apparent. The Board nevertheless considers the Company to be well placed to continue to operate for at least 12 months from the date of this report, as the Company has sufficient liquidity to pay its liabilities as and when they fall due and also to invest in new opportunities as they arise.
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 12 months from the date that these financial statements are approved. As at 30 September 2021, the Company held cash balances and investments in readily realisable securities with a value of £38.7 million, representing 15.6 per cent of the Company's NAV.
The Company has no debt, and it is expected that the Company will remain ungeared for the foreseeable future. The Directors have assessed the Company's ability to cover its annual running costs under several liquidity scenarios in which the value of liquid assets (including AIM-traded investments and OEICs) has been subject to sensitivity analysis. The Directors noted that under none of these scenarios was the Company unable to cover its costs.
The Company's forecasts and cash flow projections, taking into account the
current economic environment and other, potential changes in performance, 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 outlook for the Company is set out in the Chairman's Statement on page 7.
The Company confirms that there are no items which require disclosure under the listing rule 9.8.4R in respect of the year ended 30 September 2021.
The Company has no greenhouse gas emissions to report from its operations nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 Regulations 2013. Consequently, the Company consumed less than 40,000 kWh of energy during the year in respect of which the Directors' Report is prepared and therefore is exempt
(Strategic Report and Directors' Report) from the disclosures required under the Streamlined Energy and Carbon Reporting criteria.
Post balance sheet events are disclosed in note 3.8 of the accounts.
6 December 2021
Act 2006. Further details in relation to the appointed Directors and the governance arrangements of the Board can be found on page 36 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 and was in place throughout the year under review. 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. 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 Board is aware that Tim Farazmand acted as a consultant to the Manager until October 2019. Having considered the role that Mr Farazmand undertook
and the period of time that has elapsed since he acted in this role for Gresham House, the Board have resolved that Mr Farazmand is independent of the Manager for the purposes of the AIC Code.
The Company's financial instruments comprise equity and fixed interest investments, cash balances and liquid resources including debtors and creditors that arise directly from its operations such as sales and purchases awaiting settlement and accrued income. The financial risk management objectives and policies arising from its financial instruments and the exposure of the Company to risk are disclosed in note 3.3 of the accounts.
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
The purpose of the Company is also its investment objective which is to achieve long-term investment returns for private investors within a tax efficient structure. It does this by investing primarily in a diverse portfolio of UK growth businesses whether unquoted or traded on AIM. Investments are made selectively across a range of sectors in companies that have the potential to grow and enhance their value.
The Directors agree that establishing and maintaining an open and inclusive culture among the Board, and in its interaction with the Manager, shareholders, and other stakeholders, will support the delivery of its purpose, values and strategy. During the Board's annual evaluation process, it was apparent that all Directors seek to promote a culture of openness, integrity and debate through ongoing engagement and dialogue with the Manager, the Company's stakeholders and the Company's
The Board and Audit & Risk Committee regularly review the performance of the Company and the performance and resources of the Manager and service providers to ensure the Company can meet its objectives.
| AIC | Code Principle | Compliance Statement |
|---|---|---|
| B. | The board should establish the company's purpose, values, and strategy, and satisfy itself that these and its culture are aligned. All directors must act with |
|
| integrity, lead by example, and promote the desired culture. |
service providers. | |
| C. | The board should ensure that the necessary resources are in place for the company to meet its objectives and measure performance against them. The board should also establish a framework of prudent and effective controls, which enable risk to be assessed and managed. |
|
| attracting new shareholders. | ||
At each quarterly meeting, the Board receives a report on Company performance, the performance of its investments and the VCT sector (including its competitors) and any industry issues. The report outlines the Company's adherence to VCT compliance tests and includes forecasts for future periods, highlighting investment opportunities, operational matters and regulatory developments. Additionally, at each quarterly Board meeting the Board is presented with a Report from Kaso Legg Communications highlighting the media coverage received by the Company and the Manager to enhance the profile of the Company and, in turn,
The Board has agreed specific KPIs with the Manager that enable both parties to monitor compliance with the agreed investment policy and risk management framework. Directors regularly seek additional information from the Manager, where appropriate, to supplement these reports and formally review the performance measures and KPIs. The Manager also keeps the Board informed on all investor relations matters and peer group information as appropriate.
Additionally, 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 them.
This Corporate Governance statement forms part of the Directors' report.
Under the UK Listing Rules, listed companies are required to disclose how they have applied the principles and complied with the provisions of the corporate governance code to which they are subject. The provisions of the UK Corporate Governance Code ("UK Code"), as issued by the Financial Reporting Council ("FRC") in July 2018, are applicable to the year under review and can be viewed at www.frc.org.uk.
The related AIC Code issued by the AIC in February 2019, addresses all the principles set out in the UK Code. The FRC has confirmed that AIC member companies, such as Baronsmead Second Venture Trust plc, who report against the AIC Code will be meeting their obligations in relation to the UK Code and the associated disclosure requirements under paragraph 9.8.6 of the Listing Rules. The AIC Code can be viewed at www.theaic.co.uk where it includes an explanation of how it adapts the principles and provisions set out in the UK Code to make them relevant for investment companies.
The Board attaches great importance to the AIC Code and strives to observe its principles. Throughout the year ended 30 September 2021, the Company complied with most of the principles and provisions of the AIC Code and the table on the following pages reports on the Company's AIC Code compliance, providing explanation where the Company has not complied.
As an externally managed VCT, all the Directors are non-executive and therefore provisions of the AIC Code relating to the Chief Executive Officer and Executive Director remuneration are not relevant to the Company. Furthermore, the systems and procedures of the Manager and the provision of services provided by the Company's VCT Status Adviser, PwC, give the Board full confidence that an internal audit function is not necessary.
The Company has therefore not reported further in respect of these provisions.
The AIC Code comprises 17 principles and is split over the following five sections:
The Board's Corporate Governance statement sets out how the Company complies with each of the provisions of the AIC Code.
| AIC Code Principle |
Compliance Statement | |
|---|---|---|
| BOARD LEADERSHIP AND PURPOSE |
A successful company is led by an effective board, whose role is to promote the long-term sustainable success of the company, generating value for shareholders and contributing to wider society. Directors are fully engaged and committed to use their collective, extensive experience to foster healthy debate and drive business strategy for the long-term, sustainable success of the Company. The Company's investment objective is to achieve long-term investment returns for private investors within a tax efficient structure and the Board ensures that all decisions are made responsibly. The Board and the Manager are committed to managing the business and its investment strategy in a sustainable manner and the Board emphasises the importance of ESG in its investment decisions and risk management. At each Board meeting, time is committed to assessing and monitoring the ESG impact of new investee companies through the newly created A.
'ESG Decision Tool'.
The Board comprises four independent Non-Executive Directors. Mr Groat is the Senior Independent Director and serves as an intermediary for the other Non-Executive Directors and the Company's shareholders.
Mr McDonald was appointed as an independent Non-Executive Director of the Company on 16 February 2021. As at the date of this report, the Board comprises one female and three male Non-Executive Directors.
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 other relationships or circumstances which are likely to affect their judgement nor impair their independence. Therefore, the Board remains independent of the Manager. The Chairman, Sarah Fromson, was deemed to be independent at the
The Board is aware that Tim Farazmand acted as a consultant to the Manager until October 2019. Having considered the role that Mr Farazmand undertook and the period of time that has elapsed since he acted in this role for the Manager, the Board has resolved that Mr Farazmand is independent of the Manager for the purposes of
As a result of the Board evaluation process, the Board determined that each Director provided expert and valued contributions to Board deliberations and no one individual, or small group of individuals dominated Board decision making.
| AIC | Code Principle | Compliance Statement |
|---|---|---|
| G. | The board should consist of an appropriate combination of directors (and, in particular, independent non-executive directors) such that no one individual or small group of individuals dominates the board's decision making. |
|
| female and three male Non-Executive Directors. | ||
| time of her appointment and remains so. | ||
| the AIC Code. | ||
| H. | Non-executive directors should have sufficient time to meet their board responsibilities. They should provide constructive |
|
| challenge, strategic guidance, offer specialist advice and hold third-party service providers to account. |
||
| I. | The board, supported by the company secretary, should ensure that it has the policies, processes, information, time, and resources it needs in order to function effectively and efficiently. |
responsibilities properly. |
As part of the Board evaluation process, the contributions of each Director, and the time commitment made by each Director, are considered. Directors' other commitments are regularly reviewed, and any new appointments are considered by the other Directors to ensure there is no conflict of interest.
As a result of the Board evaluation, it was concluded that each Director provided appropriate levels of commitment and challenge to the Board and provided the Company and service providers with guidance and advice when required.
The Directors have access to the advice and services of the Company Secretary who is responsible to the Board for ensuring that Board procedures are in place and followed and that applicable rules and regulations are complied with. The Company Secretary is also responsible for ensuring good information flows between all parties. The Directors also have access to independent professional advice at the Company's expense where they judge it necessary to discharge their
AIC
The Board understands its responsibility to shareholders and stakeholders and considers the opinions of all such parties when making any decision. The Board considers that, other than its shareholders, its stakeholders are the Manager, the portfolio of investee companies, HMRC and the Company's governing bodies, the AIC and its range of reputable advisors and service providers. The Board is also committed to monitoring its impact on the environment and wider community and is prioritising focus on ESG across the investment process. The Board always considers the impact that any decision will have on any relevant stakeholder.
The Directors place considerable importance on shareholder engagement and on communications with them and all other stakeholders. Shareholders who wish to contact the Board may do so by writing to the Chairman at the Company's Registered Office. All Directors make themselves available to meet shareholders at the Company's AGM whilst ensuring the Company adheres to any government social distancing restrictions that might be in force.
This year the Company's AGM will be held in person, with shareholders who are unable to attend in person given the option to watch the AGM live. It must be noted that those who participate virtually will not be able to vote during the course of the AGM and are asked to submit their votes by proxy in advance of the AGM.
The Directors' Statement on meeting their responsibilities under Section 172 of the Companies Act 2006 can be found on pages 30 to 35.
In order for the company to meet its responsibilities to shareholders and stakeholders, the board should ensure effective engagement with, and encourage participation from, these parties. D.
There is a clear division of responsibility between the Chairman, the Directors, the Manager, and the Company's other third-party service providers. Additionally, the Board approved a policy setting out the responsibilities of the Chairman and Senior Independent Director which is available on the Company's website. The Chairman is responsible for leading the Board and is responsible for its overall effectiveness in directing the affairs of the Company. The Chairman ensures that all Directors receive accurate, timely and clear information and helps promote a culture of openness and debate in Board meetings by encouraging and facilitating the effective contribution of other Directors towards a consensus view. The Chairman also takes a leading role in ensuring effective communications with shareholders and other stakeholders. Further details on the Company's engagement with shareholders and other stakeholders can be found in the Section 172 Statement on pages 30 to 35.
The Board meets regularly throughout the year and representatives of the Manager are in attendance, when appropriate, at Board and/or Committee meetings.
Prior to each Board and Committee meeting, Directors are provided with a comprehensive set of papers giving detailed information on the Company's transactions and financial position and all Directors have timely access to all relevant management, financial and regulatory information.
The chairman leads the board and is responsible for its overall effectiveness in directing the company. They should demonstrate objective judgement throughout their tenure and promote a culture of openness and debate. In addition, the chair facilitates constructive board relations and the effective contribution of all non-executive directors, and ensures that directors receive accurate, timely and clear information.
F.
The Board evaluates its own performance and that of its Committees and the Chairman on an annual basis. For the period under review, this was carried out by way of a questionnaire and individual meetings.
The Chairman led the evaluation, which covered the functioning of the Board as a whole, composition and diversity of the Board, the effectiveness of the Board Committees and the independence and contribution made by each Director.
Each Director also completed a self-evaluation questionnaire reflecting on their personal contribution and commitment as a Director during the period and discussed any key individual areas of focus with the Chairman.
A separate evaluation of the Chairman was led by Mr Groat, Senior Independent Director. Directors provided constructive feedback regarding the Chairman by completing a Chairman evaluation questionnaire and sharing this with Mr Groat who then met with Ms Fromson to discuss this and address any points of action.
The Nomination Committee receives relevant points from the performance evaluation process and considers the information when making a recommendation to the Board regarding the election and re-election of Directors. More information regarding the proposed election and re-election of each Director can be found in the Notice of AGM.
The results of the annual Board Evaluation process conducted during the period
can be found on pages 49 to 50.
Annual evaluation of the board should consider its composition, diversity and how effectively members work together to achieve objectives. Individual evaluation should demonstrate whether each director continues to contribute effectively. L.
The Audit & Risk Committee has put in place a non-audit services policy which ensures that any work outside the scope of the standard audit work requires prior approval by the Audit & Risk Committee or the Board. This enables the Audit & Risk Committee to ensure that the external auditor remains fully independent.
The Committee agrees that the implementation of this policy has ensured that division is maintained going forward. No non-audit services have been provided by the Company's external auditor, BDO, or its predecessor, KPMG, during the period, therefore the Committee continues to believe that the external auditor remains independent.
Further information regarding the work of the Audit & Risk Committee can be found on pages 47 to 49.
The board should establish formal and transparent policies and procedures to ensure the independence and effectiveness of external audit functions and satisfy itself on the integrity of financial and narrative statements. M.
The Audit & Risk Committee has considered the Annual Report and Audited Financial Statements as a whole and agreed that it presents a fair, balanced, and understandable assessment of the Company's position and prospects.
The board should present a fair, balanced, and understandable assessment of the company's position and prospects. N.
AIC
Code Principle Compliance Statement
The Board has established a Nomination Committee, which leads the appointment process of new Directors as and when vacancies arise and as part of the Directors' ongoing succession planning.
The Board believes that diversity of experience and approach, including gender diversity, amongst Board members is of great importance and the Nomination Committee and Board consider issues of Board balance and diversity when making new appointments.
As a result of the Board evaluation held during the year, Directors acknowledge the need to have a continued focus on diversity when considering future appointments to the Board. However, the Board ensures that all appointments are made on merit and the Board is committed to ensuring that any Board vacancies are filled by the most qualified candidates and therefore no formal diversity policy is in place.
As reported in the Nomination Committee report on pages 49 to 50, Mr McDonald was appointed to the Board on 16 February 2021. Mr Townsend resigned from the Board on the same date.
Appointments to the board should be subject to a formal, rigorous, and transparent procedure, and an effective succession plan should be maintained. Both appointments and succession plans should be based on merit and objective criteria and, within this context, should promote diversity of gender, social and ethnic backgrounds, cognitive and personal strengths.
J.
The Directors' biographical details are set out on page 36. These demonstrate the wide range of skills and experience that each Director brings to the Board.
The Board has approved a tenure policy, which encompasses the whole Board and Chairman, to ensure that the Board continues to have the right balance of skills and experience.
The Board recognises the value of regular refreshment of its composition and remains committed to ensuring that Directors have the right mix of skills and experience that are aligned with the strategic plans of the Company. The Board recognises the importance of Directors maintaining independence of character and judgement. However, the Directors believe that the value brought through continuity and experience of Directors with longer periods of service can be desirable in an investment company.
Both the Nomination Committee and the Board regularly consider the composition of the Board and the succession plans for each Director. This has ensured that the Board's membership has included longer-serving directors with a balance of knowledge and experience.
With an objective to deliver long-term and consistent returns to shareholders, it is important that the Board can maintain its long-term perspective, supported by a long corporate memory, but with the regular challenge provided by fresh thinking. The composition, skills and effectiveness of the Board are reviewed at least annually to ensure that the Board has the skills and experience necessary for the management of the Company, having regard to anticipated challenges and opportunities.
The board and its committees should have a combination of skills, experience, and knowledge. Consideration should be given to the length of service of the board as a whole and membership regularly refreshed. K.
I am pleased to present the Audit & Risk Committee report for the year ended 30 September 2021.
As reported in the Corporate Governance Statement, given the size and nature of the Board, it is felt appropriate that all Directors are members of the Audit & Risk Committee. The Audit & Risk Committee members consider that, individually and collectively, they are each independent and have recent, relevant financial and risk management experience gained from the venture capital and/or financial services sector to fulfil the role of a member. The constitution and performance of the Audit & Risk Committee is reviewed on a regular basis.
During the period, the Audit & Risk Committee has:
The significant issues considered by the Committee during the year ended 30 September 2021 were:
Discussions have been held with the Manager about the Company's valuation process, its ownership of assets and the systems in place at Gresham House to ensure the accuracy of the valuation of the Company's portfolio. The Manager, the Company's Joint Valuation Forum and the Board have given additional attention to the valuation methodology applied across the portfolio as a result of the ongoing impacts of the COVID-19 pandemic. The Audit & Risk Committee received assurances from the Manager around the robust valuation processes in place, monitoring all potential COVID-19 risks that could impact the Company.
The Company engages PwC as its VCT Status Adviser to advise on its compliance with legislative requirements relating to VCTs. PwC attends at least one Audit & Risk Committee meeting each year and presents a VCT status monitoring report which details the Company's position against each of the VCT qualification tests.
Looking ahead to the next financial year, the Audit & Risk Committee undertakes to continue to work with the Company's advisers to ensure that the Company has the correct policies in place to provide necessary comfort and uphold full compliance with the VCT rules.
The Committee considered the Company's long-term financial requirements and viability for the forthcoming year and the longer period of three years, particularly in light of the ongoing effects of the COVID-19 pandemic. This assessment included the review of possible declines in investment valuations and the impact of COVID-19 on financial statements disclosures including those relating to principal risks. As a result of this assessment, the Committee concluded that the Company had adequate
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 on the Company's website and 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 below:
| AIC | ||
|---|---|---|
| O. | Code Principle The board should establish procedures to manage risk, |
Compliance Statement Risks faced by the business are considered, monitored and assessed on a regular basis. Details regarding the Company's principal risks and uncertainties can be |
| oversee the internal control framework, and determine the nature and extent of the principal risks the company is willing to take in order to achieve its long-term strategic objectives. |
found on pages 18 to 19. The Audit & Risk Committee receives service provider internal control reports which are collated by the Manager. The performance of all third party service providers are reviewed at least annually by the Management Engagement and Remuneration Committee. Further details can be found on page 51. |
|
| REMUNERATION | ||
| P. | Remuneration policies and practices should be designed to support strategy and promote long-term sustainable success. |
The Company follows the recommendation of the AIC Code that Non-Executive Directors' remuneration should reflect the time commitment and responsibilities of the role. As stated in the Remuneration Report on page 51 the Company's policy is that remuneration of Non-Executive Directors should reflect the experience of the Board as a whole, the responsibilities and time commitments each Director would have to devote to the Company's affairs and be in line with that of other relevant venture capital trusts. |
| Q. | A formal and transparent The Board's Management Engagement and Remuneration Committee considers at procedure for developing policy least annually the level of the Board's fees, in accordance with the Remuneration remuneration should be Policy approved by shareholders at the AGM held in 2020. Further details on the established. No director should Directors' remuneration is contained in the Directors' Remuneration Report on be involved in deciding their own pages 51 to 54. No Director is involved in deciding their own remuneration. remuneration outcome. |
|
| R. | Directors should exercise independent judgement and discretion when authorising remuneration outcomes, taking |
All Directors of the Company are independent Non-Executive Directors, and all Directors are members of the Management Engagement and Remuneration Committee ("MERC"). Any decision about remuneration is taken after considering the performance of the Company and the current market conditions. |
| account of company and individual performance, and wider circumstances. |
In accordance with the AIC Code Principle 9, the Chairman, Sarah Fromson who was independent on appointment (and remains so) is a member of the MERC. Mr Farazmand is the Chairman of the MERC. |
Following the implementation of the EU Audit Directive and in accordance with the FRC's Guidance on Audit Committees, the Audit & Risk Committee approved a non-audit services policy in May 2017 to ensure that the auditor's independence and objectivity is 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.
During the period, no non-audit services have been provided by the Company's current Auditor, BDO nor by the Company's previous Auditor, KPMG. The Audit & Risk Committee therefore are further satisfied that BDO is independent to the Company.
6 December 2021
(Sarah Fromson is the Chairman of the Nomination Committee except when considering Chairman succession.)
During the year ended 30 September 2021, there were changes to the composition of the Board, all of which were considered by the Nomination Committee, prior to recommendation to the Board for approval.
Mr Graham McDonald was appointed as a Non-Executive Director and Mr Anthony Townsend retired as a Non-Executive Director of the Company with effect from 16 February 2021.
Nurole, an external recruitment agency, with no connection with the Company, was engaged to assist during the appointment process of Mr McDonald. Nurole identified potential candidates and was provided by the Board with the required role profile for the candidate which included experience, skills, attributes and qualities that the Board was seeking from its new Director. A range of candidates from various backgrounds were considered and a short list of four candidates was produced and interviewed by the Nomination Committee who then recommended Mr McDonald to the Board for appointment based on his skills and wide experience within the investment management sector.
In order to review the effectiveness of the Board as a whole, its Committees, the individual Directors (including the independence of each Director) and the Chairman, the Company undertakes a thorough evaluation process by way of an extensive and tailored board evaluation questionnaire, meetings between Board members and the Chairman and completion of self-evaluation questionnaires, confidentially shared between Directors and the Chairman. This thorough evaluation process enables each Director to evaluate, assess and reflect on the Board's operations, individual Director contributions and the Company's leadership with a view to identify any shortcomings and address any areas requiring improvement.
In addition, an evaluation of the Chairman's performance and effectiveness was led by Mr Malcolm Groat, the Company's Senior Independent Director, by way of an extensive questionnaire. All evaluation processes are completed annually.
The results of the Board evaluation process indicated that the Board feels passionately that it operates in an open, committed and engaged manner with a strong, forward looking relationship with the Manager. Board members believe they are an effective Board with clear strategic vision, decision making skills and a commitment to sound corporate governance.
resources to continue in operation and meet its liabilities as they fall due both for the forthcoming year and until 2024. Related going concern and long-term viability statements are included on pages 47 and 59.
The Manager has reviewed the cyber security procedures and controls of its service providers to mitigate cyber risk and the Manager's Compliance Officer has presented their cyber security procedures to the Audit & Risk Committee. The Audit & Risk Committee will continue to receive updates from, and to work with, the Manager to ensure that the procedures in place are robust and enable continuous compliance with the General Data Protection Regulation. Following formal review of the risk profile of the Company, the Audit & Risk Committee concluded that the effectiveness of the risk management and internal control systems during the year remain appropriate.
The Company is exposed to a variety of risks and uncertainties. The Board, through delegation to the Audit & Risk Committee, has undertaken a robust assessment and review of the principal risks facing the Company, together with a review of any emerging risks that may have arisen during the year to 30 September 2021, including those that would threaten its business model, future performance, solvency or liquidity. A statement of the principal risks and uncertainties faced by the Company can be found on pages 18 and 19.
The Audit & Risk Committee oversees the operation of the Company's risk management and internal control systems through which procedures have been designed to identify and manage, rather than eliminate, risk. This involves 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 and, where necessary, corrective action is taken.
The Audit & Risk Committee receives service provider internal control reports which are collated by the Manager at each meeting, which provide an overview of the main risks identified by the Company's third-party service providers and the mitigating actions put in place for these. During the year ended 30 September 2021, the Manager assessed and reported to the Audit & Risk Committee on the operational risk of service providers and their ability to work despite the challenges posed by the ongoing impact of the COVID-19 pandemic. The Audit & Risk Committee was satisfied that each service provider had the ability to continue to deliver their service effectively, without disruption or issues resulting from the COVID-19 pandemic.
The Company does not have an internal audit function.
All the Company's management functions are delegated to independent third parties whose controls are monitored by the Audit & Risk Committee and ultimately the Board. It is therefore felt that there is no need for an internal audit function. The need for an internal audit function is considered by the Audit & Risk Committee on an annual basis.
In early 2021, the Company completed an audit tender process. Three firms were invited to tender, including BDO and each was considered to offer extensive experience of VCTs, together with tax, financial and governance expertise. All three firms invited to tender presented to the Committee, and as a result of the recommendation of the Committee, the Board appointed BDO as external auditor to the Company with effect from 28 May 2021. As part of the audit strategy presentation, BDO provided a clear description of the work to be undertaken for the audit process for the year ended 30 September 2021, including an in-depth review of portfolio valuations. The Company anticipates repeating an audit tender in 2028 in respect of the year ended 30 September 2029. This is in line with latest Corporate Governance provisions and EU requirements.
In accordance with professional guidelines, the senior audit partner is rotated after five years (at most). The current senior audit partner started working with the Company this year and will therefore change in 2026. A resolution to appoint BDO as the Company's auditors will be proposed at the 2022 AGM.
The Audit & Risk Committee sought comfort from BDO that they could perform their audit safely and remotely during the challenges posed by the COVID-19 pandemic.
An audit fee of £40,000 (exclusive of VAT) has been agreed in respect of the year ended 30 September 2021.
The Audit & Risk Committee meets at least twice a year with the Auditor. The Auditor provides a planning report in advance of the annual audit and a report on the annual report and financial statements. The Audit & Risk Committee has an opportunity to question and challenge the Auditor in respect of each of these reports. In addition, at least once a year, the Audit & Risk Committee has an opportunity to discuss any aspect of the Auditor's work with the Auditor in the absence of the Manager. After each audit, the Audit & Risk Committee reviews the audit process and considers its effectiveness.
In addition, the Board evaluation results acknowledge the composition of the Board as appropriately diverse in respect to gender and professional experience. The Company's ESG risk management mechanisms were considered strong and it was felt that ESG should continue to be integrated into every aspect of the Company and its investments.
The Nomination Committee reviews the size and structure of the Board annually and succession planning remains a key area of focus for the Board for the year ending 30 September 2022. The Nomination Committee is also responsible for assessing the time commitment required for each Board appointment and ensuring that the present incumbents have sufficient time to undertake them.
The Nomination Committee aims to attract directors with diverse skills and experience and recommends appointments to the Board, based on merit, to ensure vacancies are fulfilled by the most qualified candidates. Candidates who complement the balance of skills, knowledge and experience needed to align with the Company's strategic aims are always considered. When considering future appointments, the Nomination Committee promotes diversity of gender, social and ethnic backgrounds as well as cognitive and personal strengths to aid effective decision-making. The Committee will consider the use of external consultants when shortlisting candidates, if required.
The Board has approved and adopted a Tenure and Reappointment Policy (the "Policy"). In accordance with the Policy, the Board will seek to recruit a Director approximately every four years, with no Director expected to serve on the Board for longer than nine years. The Policy includes the Chair within its consideration of each Director's tenure. The Board intends to maintain a range of experience from Directors who have served on the Board for varying periods. This approach aims to reserve the cumulative experience and understanding of the Company, its commitments and investment portfolio amongst Directors, while benefiting from fresh thinking and promoting diversity.
In accordance with the AIC Code all Directors will stand for annual re-election/election at the Company's forthcoming AGM. Resolutions to elect/re-elect all Directors are contained within the Notice of AGM.
The table below sets out the Directors' attendance at scheduled, quarterly meetings held during the year, as well as scheduled Committee meetings held during the year, against the number of meetings each Director was entitled to attend.
| Board of Directors | Management Engagement and Audit Remuneration Committee Committee |
Nomination Committee | ||||||
|---|---|---|---|---|---|---|---|---|
| Eligible | Attended | Eligible | Attended | Eligible | Attended | Eligible | Attended | |
| Sarah Fromson | 4 | 4 | 2 | 2 | 1 | 1 | 1 | 1 |
| Anthony Townsend* | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 |
| Malcolm Groat | 4 | 4 | 2 | 2 | 1 | 1 | 1 | 1 |
| Tim Farazmand | 4 | 4 | 2 | 2 | 1 | 1 | 1 | 1 |
| Graham McDonald** | 3 | 3 | 1 | 1 | 0 | 0 | 0 | 0 |
* Anthony Townsend retired on 16 February 2021
** Graham McDonald was appointed on 16 February 2021
Additional meetings were also held during the year in respect of the valuations of unquoted investments in the portfolio, the Company's fundraising offer to shareholders for subscription, the appointment of Directors and the change of Auditor.
Sarah Fromson Nomination Committee Chairman 6 December 2021
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, BDO, 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 56 to 61.
An ordinary resolution to approve the Directors' Remuneration Report will be proposed at the forthcoming AGM on 16 February 2022.
The Management Engagement and Remuneration Committee is chaired by Mr Farazmand and comprises all the Directors of the Company, whose names are set out on page 36 of the Directors' Report.
As explained in the Corporate Governance Statement on page 40, given the size and nature of the company, it is felt appropriate that all Directors are members of the Management Engagement & Remuneration Committee. The Company has no executive directors and the Non-Executive Directors are considered independent.
The Management Engagement and Remuneration Committee's key responsibilities are:
together with the terms and conditions of the appointment; and
The Board delegates the execution of the Company's investment strategy and the management of assets to the Manager, by way of a Management Agreement, subject to the Board being kept informed of all material developments (including proposed acquisitions or divestment of investments) in the Company's portfolio. The Board believes that the Manager's operations in the VCT sector are outstanding and that its ability to continue to achieve results by adapting to an ever-changing regulatory environment, and the ongoing challenges posed by the ongoing COVID-19 pandemic, has been impressive. The Board continues to work with the Manager to develop operational policies as and where relevant and notes that Gresham House supports the UK Stewardship Code and complies with its guidelines regarding proxy voting and engagement.
The Management Engagement and Remuneration Committee keeps the performance of the Manager under continual review. In addition, in accordance with the requirements of the AIC Code the Management Engagement and Remuneration Committee reviews the performance of the Manager's obligations under the Management Agreement and considers the need for any variation to the terms of the Management Agreement on an annual basis.
The Management Engagement and Remuneration Committee then makes a recommendation to the Board about the continuing appointment of the Manager. The Management Engagement & Remuneration Committee also
reviews annually the performance of all other service providers to the Company and any matters concerning their respective agreements.
Each year, the Committee reviews the Directors' fees to ensure they are comparative with others in the VCT industry relative to the NAV of the VCT, so that the Board can attract suitably qualified candidates to the Board. In addition, the Board has regard to the workload that individual Directors and the Chairman undertake as members of the Board, feedback from shareholders, the performance of the Company's portfolio and the prevailing rate of CPI at the time.
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. In addition, the Directors spend a considerable amount of time monitoring the 80 per cent test, the other continuing VCT tests, the co-investment scheme and the fundraisings. 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 42 to 43, all of which the Board believes should be considered when determining the remuneration of the Directors.
The Company does not operate a share incentive plan. None of the Directors receive any remuneration or any part of their fee in the form of shares in the Company, options to subscribe for shares, warrants or any other equity-based scheme.
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 below 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 39 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 on pages 4 to 11.
At least annually, 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.
The Directors who served in the year received the following emoluments in the form of fees:
| Percentage | |||
|---|---|---|---|
| Year to | Year to | change in | |
| 30 September 30 September | Directors' | ||
| 2021 | 2020 | Fees*** | |
| £ | £ | % | |
| Sarah Fromson (Chairman)‡ | 36,000 | 32,733 | 10.0 |
| Tim Farazmand* | 28,000 | 11,666 | 140.0 |
| Malcolm Groat | 30,000 | 30,000 | – |
| Graham McDonald† | 15,050 | N/A | – |
| Anthony Townsend** | 13,066 | 28,000 | (53.3) |
| Total | 122,116 | 102,399 | |
| ‡ Sarah was appointed as Chairman on 27 February 2020 |
* Tim Farazmand was appointed as a Non-Executive Director on 1 May 2020.
† Graham McDonald was appointed as a Non-Executive Director on 16 February 2021.
** Anthony Townsend retired as a Non-Executive Director on 16 February 2021. *** Individual Director fees did not change between the year ended 30 September 2020 and 30 September 2021. The figures in this column are solely as a result of changes to Board composition and roles.
Shareholder views in respect of Directors' remuneration are communicated at the Company's AGM and are taken into account in formulating the Directors' remuneration policy.
The votes cast by proxy at the last AGM were as follows:
| Number | Percentage | |
|---|---|---|
| of votes | of votes cast | |
| For | 14,360,363 | 85.63% |
| Discretion of the Chairman | 1,136,327 | 6.78% |
| Against | 1,273,195 | 7.59% |
| Votes withheld | 502,493 |
| Number of votes |
Percentage of votes cast |
|
|---|---|---|
| For | 11,834,934 | 75.27% |
| Discretion of the Chairman | 1,310,285 | 8.33% |
| Against | 2,578,625 | 16.40% |
| Votes withheld | 402,095 |
All Directors act in a non-executive capacity and the fees for their services are approved by the Committee. The fees for the Directors are determined within the limits set out in the Company's Articles of Association. In November 2020, the Management Engagement and Remuneration Committee met to consider the level of Directors' fees for the year ending 30 September 2021 and concluded that the fees remained appropriate.
In November 2021, the Management Engagement and Remuneration Committee met to review the level of Directors' fees for the year ending 30 September 2022 and concluded that Director fees remained appropriate.
The remuneration policy, as set out above, was approved by the members at the AGM held on 27 February 2020. There are no proposed changes to the policy and therefore it is intended that this policy will continue for the year ending 30 September 2022 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.
A copy of the Company's Remuneration Policy can be obtained by writing to the Company Secretary at the Company's registered office.
Fees for any new Non-Executive Director who is appointed to the Board will be made in accordance with the Company's Remuneration Policy.
The Directors are not eligible to receive pension entitlements or 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 with the Company; 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. Directors' terms and conditions for appointment are set out in letters of appointment which are available for inspection at the registered office of the Company.
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 and have similar investment objectives and structures. 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 circumstances of the Company, the duties and responsibilities of the Directors and the value and amount of time committed to the Company's affairs.
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 | Year to 30 September 30 September |
||
|---|---|---|---|
| 2021 | 2020 | Percentage | |
| £ | £ | change | |
| Total Directors' fees | 122,116 | 133,583 | (8.6) |
| Shares repurchased | 4,536,000 | 3,186,000 | 42.4 |
| Dividends | 18,082,000 | 15,904,996 | 13.7 |
| NAV | 248,374,000 182,317,000 | 36.2 |
The Directors' fees as a percentage of NAV for the year to 30 September 2021 were 0.049 per cent and for the year to 30 September 2020 were 0.073 per cent.
There is no requirement under the Company's Articles of Association or the terms of their appointment for Directors to hold shares in the Company. The interests of the Directors in the shares of the Company (including their connected persons) as at 30 September 2021 were as follows:
| 30 September 30 September | ||
|---|---|---|
| 2021 | 2020 | |
| Ordinary | Ordinary | |
| 10p shares | 10p shares | |
| Sarah Fromson (Chairman) | 38,603 | 19,011 |
| Tim Farazmand | 65,147 | 0 |
| Malcolm Groat | 251,804 | 147,312 |
| Graham McDonald | 6,013 | N/A |
| Total | 361,567 | 166,323 |
There have been no changes to these holdings between 30 September 2021 and the date of this report.
Approved by the Board of Directors and signed by:
Chairman of the Management Engagement and Remuneration Committee
6 December 2021
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 ensuring the Annual Report and the financial statements are made available on a website. Financial statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.
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.
On behalf of the Board:
Chairman
6 December 2021
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified, 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. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
| Key audit matter | How the scope of our audit addressed the key audit matter | |||
|---|---|---|---|---|
| Valuation of unquoted |
The Investment Manager's fee is based on the value of the net assets of the fund, as stated in the |
We tested a risk-based sample of the unquoted investments. |
||
| investments | Strategic Report. | For equity investments held at fair value we: | ||
| (Notes 2.3 and 3.3) | As the Investment Manager is also responsible for valuing investments for the financial statements, there is a potential risk of misstatement of investment valuations. |
• Formed a determination of whether the valuation methodology is the most appropriate in the circumstances under the International Private Equity and Venture Capital Valuation ("IPEVCV") Guidelines; |
||
| A significant number of the investments held are unquoted. There is a high level of estimation uncertainty involved in determining the unquoted |
• Re-performed the calculation of investment valuations based on EBITDA or revenue multiples; |
|||
| assumptions involved in assessing fair value. | investment valuations, which consist of both equity and loan stock instruments, due to the nature of the |
• Benchmarked key inputs and estimates to independent information and our own research; |
||
| • Challenged assumptions inherent in the valuations by obtaining support for their rationale and assessing the impact of the estimation uncertainty concerning these assumptions; |
||||
| • Considered the economic environment in which the investment operates to identify factors that could impact the valuation and considered whether these had been appropriately incorporated into the valuation; |
||||
| • Paid particular attention to COVID-19 by challenging key assumptions made in the valuation and ensuring the methodology remains applicable. |
||||
| For loans held at fair value we: | ||||
| • Vouched the security to supporting documentation; |
||||
| • Considered the assumption that the fair value is not significantly different to cost by challenging the assumption that there is no significant movement in the market interest rate since acquisition and considering the "unit of account" concept; |
||||
| • Reviewed the treatment of accrued redemption premium and other fixed returns in line with the Statement of Recommended Practice. |
||||
| We performed analytical procedures on the remaining unquoted investments, including checking whether the valuation was approved by the Investment Committee, checking whether the valuation methodology is permitted by the IPEVCV guidelines, checking the arithmetic accuracy |
of the valuation and checking whether the valuation is
based on recent financial information.
Based on the procedures performed we noted that the methodology and assumptions used by the Investment Manager in their unquoted investment valuations to be appropriate.
In our opinion the financial statements:
We have audited the financial statements of Baronsmead Second Venture Trust plc (the 'Company') for the year ended 30 September 2021 which comprise the Income statement, the Statement of change in equity, the Balance sheet, the Statement of cash flows and the notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and UK Accounting Standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our audit opinion is consistent with the additional report to the audit committee.
Following the recommendation of the audit committee, we were appointed by the Board of Directors on 28 May 2021 to audit the financial statements for the year ending 30 September 2021 and subsequent financial periods. The period of total uninterrupted engagement including retenders and reappointments is 1 year, covering the years ending 30 September 2021. We remain independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services prohibited by that standard were not provided to the Company.
In auditing the financial statements, we have concluded that the Directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the Directors' assessment of the Company's ability to continue to adopt the going concern basis of accounting included:
• Evaluating management's method of assessing the going concern in light of market volatility and the present uncertainties, including COVID-19.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Company's ability to continue as a going concern for a period of at least 12 months from when the financial statements are authorised for issue.
In relation to the Company's reporting on how it has applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the Directors' statement in the financial statements about whether the Directors considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.
| 2021 | ||
|---|---|---|
| matters | Key audit Valuation of unquoted investments |
✓ |
| Valuation of quoted investments |
✓ | |
Materiality £3,570,000 based on 1.5% of gross investments
Our audit was scoped by obtaining an understanding of the Company and its environment, including the Company's system of internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the Directors that may have represented a risk of material misstatement.
Valuation of quoted investments (Notes 2.3 and 3.3) The Investment Manager's fee is based on the value of the net assets of the fund, as stated in the Strategic Report.
As the Investment Manager is also responsible for valuing investments for the financial statements, there is a potential risk of misstatement of investment valuations.
Although the quoted investments are Level 1 quoted investments, due to the proportion of the portfolio invested in quoted investments, this is considered a key audit matter.
We tested 100% of the portfolio of quoted investments by:
Based on the procedures performed we noted that the prices applied by the Investment Manager for the quoted investment portfolio to be appropriate.
We also determined that for items impacting the revenue return, a misstatement of less than materiality for the financial statements as a whole, could influence the economic decisions of users. As a result, we determined a lower testing threshold for these items based on 5 per cent of gross expenditure.
We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £70,000. We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.
The directors are responsible for the other information. The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
The Listing Rules require us to review the Directors' statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the Company's compliance with the provisions of the UK Corporate Governance Statement specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit.
• The Directors' statement with regards to the appropriateness of adopting the going concern basis of accounting
• The Directors' explanation as to its assessment of the entity's prospects, the period this assessment covers and
| Going concern and longer-term |
and any material uncertainties identified; and | |
|---|---|---|
| viability | why the period is appropriate. | |
| Other Code | • | Directors' statement on fair, balanced and understandable; |
| provisions | ||
| control systems; and | ||
| • | The section describing the work of the audit committee. |
• Board's confirmation that it has carried out a robust assessment of the emerging and principal risks;
• The section of the annual report that describes the review of effectiveness of risk management and internal
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows:
| Company Financial Statements | 2021 £ |
|---|---|
| Materiality | 3,570,000 |
| Basis for determining materiality | 1.5% of gross investments |
| Rationale for the benchmark applied | In setting materiality, we have had regard to the nature and disposition of the investment portfolio. Given that the VCT's portfolio is comprised of unquoted investments in addition to the quoted investments, which would typically have a wider spread of reasonable alternative possible valuations, we have applied a percentage of 1.5% of gross investments. |
| Performance materiality | £2,320,000 |
| Basis for determining performance materiality | 65% of materiality |
| The level of performance materiality applied was set after having considered a number of factors including the expected total value of known and likely misstatements and the level of transactions in the year. |
and DTR rules, the principles of the UK Corporate Governance Code, industry practice represented by the Statement of Recommended Practice: Financial Statements of Investment Trust Companies and Venture Capital Trusts ("the SORP") with consequential amendments and FRS 102. We also considered the Company's qualification as a VCT under UK tax legislation.
Our tests included, but were not limited to:
We assessed the susceptibility of the financial statements to material misstatement including fraud and considered the key fraud risk areas to be the valuation of unquoted investments and management override of controls.
Our tests included, but were not limited to:
confirmation of bank balances;
assessment criteria as well as an evidence of bias by the Investment
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become aware of it.
A further description of our responsibilities is available on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
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.
(Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor London, UK Date: 6 December 2021
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
Based on the responsibilities described below and our work performed during the course of the audit, we are required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below.
As explained more fully in the Statement of Directors' responsibilities, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for 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 the Directors 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 or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:
We gained an understanding of the legal and regulatory framework applicable to the Company and the industry in which it operates, and considered the risk of acts by the Company which were contrary to applicable laws and regulations, including fraud. These included but were not limited to compliance with Companies Act 2006, the FCA listing
| Strategic report | In our opinion, based on the work undertaken in the course of the audit: | |||||
|---|---|---|---|---|---|---|
| and Directors' report |
• the information given in the Strategic report and the Directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and |
|||||
| • the Strategic report and the Directors' report have been prepared in accordance with applicable legal requirements. |
||||||
| In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the Directors' report. |
||||||
| Directors' remuneration |
In our opinion, the part of the Directors' remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. |
|||||
| Matters on which we are required to |
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: |
|||||
| report by exception |
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or |
|||||
| • the Company financial statements and the part of the Directors' remuneration report to be audited are not in agreement with the accounting records and returns; or |
||||||
| • certain disclosures of Directors' remuneration specified by law are not made; or |
||||||
| • we have not received all the information and explanations we require for our audit. |
| Non-distributable reserves | Distributable reserves | |||||||
|---|---|---|---|---|---|---|---|---|
| Called-up share capital |
premium | Share Revaluation reserve |
Capital reserve |
Revenue reserve |
Total | |||
| Notes | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| At 1 October 2020 | 27,146 | 46,775 | 30,890 | 75,290 | 2,216 | 182,317 | ||
| Profit after taxation | – | – | 46,591 | 8,316 | 1,624 | 56,531 | ||
| Net proceeds of share issues, share | ||||||||
| buybacks & sale of shares from treasury | 4,060 | 27,456 | – | (3,908) | – | 27,608 | ||
| Dividends paid | 2.4 | – | – | – | (16,000) | (2,082) | (18,082) | |
| At 30 September 2021 | 31,206 | 74,231 | 77,481 | 63,698 | 1,758 | 248,374 |
| Non-distributable reserves | Distributable reserves | ||||||
|---|---|---|---|---|---|---|---|
| Called-up | Share Revaluation | Capital | Revenue | ||||
| share capital | premium | reserve | reserve | reserve | Total | ||
| Notes | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| At 1 October 2019 | 24,802 | 31,191 | 25,492 | 92,316 | 1,575 | 175,376 | |
| Profit after taxation | – | – | 5,398 | 322 | 1,981 | 7,701 | |
| Net proceeds of share issues, share | |||||||
| buybacks & sale of shares from treasury | 2,344 | 15,584 | – | (2,782) | – | 15,146 | |
| Other costs charged to capital | – | – | – | (1) | – | (1) | |
| Dividends paid | 2.4 | – | – | – | (14,565) | (1,340) | (15,905) |
| At 30 September 2020 | 27,146 | 46,775 | 30,890 | 75,290 | 2,216 | 182,317 |
The notes on pages 66 to 78 form part of these financial statements.
| Year ended 30 September 2021 |
Year ended 30 September 2020 |
|||||||
|---|---|---|---|---|---|---|---|---|
| Notes | Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
||
| Gains on investments | 2.3 | – | 59,071 | 59,071 | – | 8,680 | 8,680 | |
| Income | 2.5 | 3,821 | – | 3,821 | 4,008 | – | 4,008 | |
| Investment management fee | 2.6 | (1,424) | (4,272) | (5,696) | (1,078) | (3,235) | (4,313) | |
| Other expenses | 2.6 | (665) | – | (665) | (674) | – | (674) | |
| Profit before taxation | 1,732 | 54,799 | 56,531 | 2,256 | 5,445 | 7,701 | ||
| Taxation | 2.9 | (108) | 108 | – | (275) | 275 | – | |
| Profit for the year, being total comprehensive income for the year |
1,624 | 54,907 | 56,531 | 1,981 | 5,720 | 7,701 | ||
| Return per ordinary share: Basic and diluted |
2.2 | 0.59p | 19.96p | 20.55p | 0.82p | 2.36p | 3.18p |
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 or FRS 102. The supplementary revenue return and capital return columns are prepared in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies ("AIC SORP").
The notes on pages 66 to 78 form part of these financial statements.
| Year ended 30 September 30 September 2021 |
Year ended 2020 |
|
|---|---|---|
| £'000 | £'000 | |
| Cash flows from operating activities | ||
| Investment income received | 4,111 | 3,603 |
| Investment management fees paid | (5,281) | (4,269) |
| Other cash payments | (680) | (673) |
| Net cash outflow from operating activities | (1,850) | (1,339) |
| Cash flows from investing activities | ||
| Purchases of investments | (49,314) | (36,999) |
| Disposals of investments | 50,397 | 30,976 |
| Net cash inflow/(outflow) from investing activities | 1,083 | (6,023) |
| Cash flows from financing activities | ||
| Gross proceeds of share issues | 32,974 | 18,435 |
| Gross proceeds from sale of shares from treasury | 651 | 657 |
| Gross costs of share buybacks | (4,092) | (3,186) |
| Costs of share issues | (1,459) | (507) |
| Costs of share buybacks | (21) | (15) |
| Equity dividends paid | (18,082) | (15,905) |
| Costs charged to capital | – | (1) |
| Net cash inflow from financing activities | 9,971 | (522) |
| Increase/(decrease) in cash | 9,204 | (7,884) |
| Reconciliation of net cash flow to movement in net cash | ||
| Increase/(decrease) in cash | 9,204 | (7,884) |
| Opening cash position | 3,108 | 10,992 |
| Closing cash at bank and on deposit | 12,312 | 3,108 |
| Reconciliation of profit before taxation to net cash outflow from operating activities | ||
| Profit before taxation | 56,531 | 7,701 |
| Gains on investments | (59,071) | (8,680) |
| Income reinvested | (179) | – |
| Decrease/(increase) in debtors | 462 | (403) |
| Increase in creditors | 407 | 43 |
| Net cash outflow from operating activities | (1,850) | (1,339) |
The notes on pages 66 to 78 form part of these financial statements.
| As at | As at 30 September 30 September |
|
|---|---|---|
| Notes | 2021 £'000 |
2020 £'000 |
| Fixed assets | ||
| Investments 2.3 |
238,100 | 179,932 |
| Current assets | ||
| Debtors 2.7 |
109 | 571 |
| Cash at bank | 12,312 | 3,108 |
| 12,421 | 3,679 | |
| Creditors (amounts falling due within one year) 2.8 |
(2,147) | (1,294) |
| Net current assets | 10,274 | 2,385 |
| Net assets | 248,374 | 182,317 |
| Capital and reserves | ||
| Called-up share capital 3.1 |
31,206 | 27,146 |
| Share premium 3.2 |
74,231 | 46,775 |
| Capital reserve 3.2 |
63,698 | 75,290 |
| Revaluation reserve 3.2 |
77,481 | 30,890 |
| Revenue reserve 3.2 |
1,758 | 2,216 |
| Equity shareholders' funds 2.1 |
248,374 | 182,317 |
| Net asset value per share | ||
| – Basic and diluted 2.1 |
87.77p | 73.74p |
The notes on pages 66 to 78 form part of these financial statements.
The financial statements were approved, and authorised for issue, by the board of Directors of Baronsmead Second Venture Trust plc on 6 December 2021 and were signed on its behalf by:
Chairman
The Company has fully adopted sections 11 and 12 of FRS 102.
Purchases or sales of investments are recognised at the date of transaction at present value.
Investments are subsequently measured at fair value through profit and loss. 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 Guidelines").
The key judgements in the fair valuation process are:
judgement applied in the selection of the methodology used for determining the fair value of each unquoted investment
The key estimate in the financial statements is the determination of the fair value of the unquoted investments. This estimate is key as it significantly impacts the valuation of the unlisted investments at the balance sheet date. The fair valuation process involves estimates using inputs that are unobservable (for which market data is unavailable). Fair value estimates are cross-checked to alternative estimation methods where possible to improve the robustness of the estimate. As the valuation outcomes may differ from the fair value estimates a price sensitivity analysis is provided in Other Price Risk Sensitivity in note 3.3 on pages 75 and 76. The risk of an over or underestimation of fair values is greater when methodologies are applied using more subjective inputs.
The determination of fair value for unquoted investments involves key assumptions dependent upon the valuation methodology used. The primary methodologies applied are:
The Earnings Multiple approach involves more subjective inputs than the Cost of recent investment and Offer approaches and therefore presents a greater risk of over or under estimation. The Cost of recent investment approach involves holding the investment at the price set in the latest available funding round.
The key assumptions for the Multiples approach are that the selection of comparable companies on which to determine earnings multiple (chosen on the basis of their business characteristics and growth patterns) and using either historic or forecast revenues (as considered most appropriate) provide a reasonable basis for identifying relationships between enterprise value and growth to apply in the determination of fair value. Other assumptions include the appropriateness of the discount magnitude applied for reduced liquidity and other qualitative factors. The assumption of offer less 10 per cent is in line with our internal valuation methodology.
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.
We have grouped notes into sections under three key categories:
| Number of ordinary shares |
Net asset value per share attributable |
Net asset value attributable |
||||
|---|---|---|---|---|---|---|
| 30 September 30 September 30 September 30 September 30 September 30 September | ||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |
| number | number | pence | pence | £'000 | £'000 | |
| Ordinary shares (basic) | 282,974,085 247,251,570 | 87.77 | 73.74 | 248,374 | 182,317 |
| Weighted average number of ordinary shares |
Return per ordinary share |
Net profit after taxation |
||||
|---|---|---|---|---|---|---|
| 30 September 30 September 30 September 30 September 30 September 30 September | ||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |
| number | number | pence | pence | £'000 | £'000 | |
| Revenue | 275,054,819 242,461,220 | 0.59 | 0.82 | 1,624 | 1,981 | |
| Capital | 275,054,819 242,461,220 | 19.96 | 2.36 | 54,907 | 5,720 | |
| Total | 20.55 | 3.18 | 56,531 | 7,701 |
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, February 2018, October 2019 and April 2021 and on the assumption that the Company maintains VCT status with HMRC.
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.
After making the necessary enquiries, including those made during the preparation of the viability statement in the Strategic Report, the Directors believe that the Company will continue to be able to meet its liabilities as and when they fall due for a period of at least 12 months, therefore it is appropriate to apply the going concern basis in preparing the financial statements. The Directors acknowledge the significant adverse effect that the COVID-19 outbreak has had globally, however the Directors consider the Company to be well placed to continue to operate for at least 12 months from the date of this report. The Company has no debt and has sufficient liquidity to meet both its contracted expenditure and its discretionary cash outflows, including to invest in new opportunities as they arise. The Directors note that the Company's third-party suppliers are not experiencing any significant operational difficulties affecting their respective services to the Company. The Directors have also assessed the Company's ability to cover its annual running costs under several liquidity scenarios in which the value of liquid assets (including AIM-traded investments and OEICs) has been subject to sensitivity analysis, taking into account the current economic environment and other, plausibly possible changes in performance. It is therefore appropriate to apply the going concern basis in preparing the financial statements.
For the year ended 30 September 2021
| Level 1 | Level 2 | Level 3 | ||||
|---|---|---|---|---|---|---|
| Collective | ||||||
| Traded | Listed | Traded | investment | |||
| on AIM | on LSE | on AIM | vehicles | Unquoted | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Opening book cost | 54,095 | 3,429 | 6,513 | 45,418 | 39,587 | 149,042 |
| Opening unrealised appreciation/(depreciation) | 17,433 | (3,387) | (3,960) | 13,949 | 6,855 | 30,890 |
| Opening fair value | 71,528 | 42 | 2,553 | 59,367 | 46,442 | 179,932 |
| Movements in the year: | ||||||
| Transfer between levels | 6,513 | – | (6,513) | – | – | – |
| Purchases at cost | 4,146 | – | – | 32,439 | 12,908 | 49,493 |
| Sale – proceeds | (10,946) | – | – | (29,453) | (9,997) | (50,396) |
| – realised gains/(losses) on sales | 4,253 | – | – | – | (1,163) | 3,090 |
| Unrealised gains realised during the year | 5,003 | – | – | – | 4,387 | 9,390 |
| Increase/(decrease) in unrealised appreciation | 21,897 | (8) | 3,960 | 13,348 | 7,394 | 46,591 |
| Closing fair value | 102,394 | 34 | – | 75,701 | 59,971 | 238,100 |
| Closing book cost | 63,064 | 3,429 | – | 48,404 | 45,722 | 160,619 |
| Closing unrealised appreciation/(depreciation) | 39,330 | (3,395) | – | 27,297 | 14,249 | 77,481 |
| Closing fair value | 102,394 | 34 | – | 75,701 | 59,971 | 238,100 |
| Equity shares | 102,394 | 34 | – | – | 37,795 | 140,223 |
| Preference shares | – | – | – | – | 10,074 | 10,074 |
| Loan notes | – | – | – | – | 12,102 | 12,102 |
| Collective investment vehicles | – | – | – | 75,701 | – | 75,701 |
| Closing fair value | 102,394 | 34 | – | 75,701 | 59,971 | 238,100 |
For the year ended 30 September 2020
| Level 1 | Level 2 | Level 3 | ||||
|---|---|---|---|---|---|---|
| Collective | ||||||
| Traded | Listed | Traded | investment | |||
| on AIM £'000 |
on LSE £'000 |
on AIM £'000 |
vehicles £'000 |
Unquoted £'000 |
Total £'000 |
|
| Opening book cost | 62,148 | – | 8,443 | 32,865 | 37,156 | 140,612 |
| Opening unrealised appreciation/(depreciation) | 1,659 | – | (694) | 12,753 | 11,774 | 25,492 |
| Opening fair value | 63,807 | – | 7,749 | 45,618 | 48,930 | 166,104 |
| Movements in the year: | ||||||
| Transfer between levels | (2,274) | 3,429 | (1,930) | – | 775 | – |
| Purchases at cost | 2,847 | – | – | 26,130 | 7,147 | 36,124 |
| Sale – proceeds | (13,759) | – | – | (13,577) | (3,640) | (30,976) |
| – realised gains/(losses) on sales | 1,434 | – | – | – | (1,496) | (62) |
| Unrealised gains/(losses) realised during the year | 3,699 | – | – | – | (355) | 3,344 |
| Increase/(decrease) in unrealised appreciation | 15,774 | (3,387) | (3,266) | 1,196 | (4,919) | 5,398 |
| Closing fair value | 71,528 | 42 | 2,553 | 59,367 | 46,442 | 179,932 |
| Closing book cost | 54,095 | 3,429 | 6,513 | 45,418 | 39,587 | 149,042 |
| Closing unrealised appreciation/(depreciation) | 17,433 | (3,387) | (3,960) | 13,949 | 6,855 | 30,890 |
| Closing fair value | 71,528 | 42 | 2,553 | 59,367 | 46,442 | 179,932 |
| Equity shares | 71,528 | 42 | 2,553 | – | 27,452 | 101,575 |
| Preference shares | – | – | – | – | 3,217 | 3,217 |
| Loan notes | – | – | – | – | 15,773 | 12,102 |
| Collective investment vehicles | – | – | – | 59,367 | – | 59,367 |
| Closing fair value | 71,528 | 42 | 2,553 | 59,367 | 46,442 | 179,932 |
The gains and losses included in the above table have all been recognised in the Income Statement on page 62. The AIM-traded investments held in Level 2 as at 30 September 2020 have been transferred to Level 1 after recent trading activity in the period.
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.
| As at | As at | |
|---|---|---|
| 30 September 30 September | ||
| 2021 | 2020 | |
| £'000 | £'000 | |
| Level 1 | ||
| Investments traded on AIM | 102,394 | 71,528 |
| Level 2 | ||
| Investments traded on AIM | – | 2,553 |
| Collective investment vehicles | 75,701 | 59,367 |
| Investments listed on LSE | 34 | 42 |
| Level 3 | ||
| Unquoted investments | 59,971 | 46,442 |
| 238,100 | 179,932 |
The nature of the unquoted portfolio currently will influence the valuation technique applied. The valuation approach recognises that, as stated in the IPEV Guidelines, the price of a recent investment, if resulting from an orderly transaction, generally represents fair value as at the transaction date and may be an appropriate starting point for estimating fair value at subsequent measurement dates. However, consideration is given to the facts and circumstances as at the subsequent measurement date, including changes in the market or performance of the investee company. Milestone analysis is used where appropriate to incorporate the operational progress of the investee company into the valuation. Additionally, the background to the transaction must be considered. As a result, various multiples based techniques are employed to assess the valuations particularly in those companies with established revenues. All valuations are cross-checked for reasonableness by employing relevant alternative techniques.
| Year ended 30 September 2021 |
Year ended 30 September 2020 |
||||||
|---|---|---|---|---|---|---|---|
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| Investment management fee | 1,424 | 4,272 | 5,696 | 1,078 | 3,235 | 4,313 | |
| Performance fee | – | – | – | – | – | – | |
| 1,424 | 4,272 | 5,696 | 1,078 | 3,235 | 4,313 |
The management agreement may be terminated by either party giving 12 months notice of termination.
The Manager, Gresham House, 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 collective investment vehicles, UK Micro Cap, Multi Cap and Small Cap, are also managed by Gresham House. Arrangements are in place to avoid the double charging of fees.
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. £Nil performance fee is payable for the year ended 30 September 2021 (2020: £nil).
Other expenses
| Year ended | Year ended | |
|---|---|---|
| 30 September 30 September | ||
| 2021 | 2020 | |
| £'000 | £'000 | |
| Directors' fees | 122 | 134 |
| Secretarial and accounting fees paid to the Manager | 143 | 175 |
| Remuneration of the auditors and their associates: | ||
| – current auditors | 48 | – |
| – previous auditors | 30 | 58 |
| Other | 322 | 307 |
| 665 | 674 |
| Remuneration of the auditors and their associates: |
|---|
Information on Directors' remuneration is given in the Directors' emoluments table on page 53. During the year there was no remuneration due to the auditors for non-audit services (2020: £nil).
2.7 Debtors
| As at | As at | |
|---|---|---|
| 30 September 30 September | ||
| 2021 | 2020 | |
| £'000 | £'000 | |
| Prepayments and accrued income | 109 | 571 |
| 109 | 571 |
| As at | As at | |
|---|---|---|
| 30 September 30 September | ||
| 2021 | 2020 | |
| £'000 | £'000 | |
| Management, secretarial and accounting fees due | 1,598 | 1,188 |
| Amounts due to brokers | 444 | – |
| Other creditors | 105 | 106 |
| 2,147 | 1,294 |
All expenses are recorded on an accruals basis.
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 Company received £20.9 million (2020: £17.4 million) from investments sold in the year, excluding liquidity funds redeemed of £29.5 million (2020: £13.6 million). The book cost of these investments when they were purchased was £8.5 million (2020: £14.2 million). These investments have been revalued over time and until they were sold any unrealised gains or losses were included in the fair value of the investments.
| Year ended 30 September 2021 |
Year ended 30 September 2020 |
|||||
|---|---|---|---|---|---|---|
| Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
| For the year ended 30 September 2021 Interim dividend of 3.0p per ordinary share paid on 10 September 2021 |
850 | 7,646 | 8,496 | – | – | – |
| For the year ended 30 September 2020 Final dividend of 3.5p per ordinary share paid on 4 March 2021 |
1,232 | 8,354 | 9,586 | – | – | – |
| Interim dividend of 3.0p per ordinary share paid on 11 September 2020 For the year ended 30 September 2019 |
– | – | – | 247 | 7,158 | 7,405 |
| Final dividend of 3.5p per ordinary share paid on 3 March 2020 |
– | – | – | 1,093 | 7,407 | 8,500 |
| 2,082 | 16,000 | 18,082 | 1,340 | 14,565 | 15,905 |
| Year ended 30 September 2021 |
Year ended 30 September 2020 |
|||||
|---|---|---|---|---|---|---|
| Quoted | Unquoted | Quoted | Unquoted | |||
| securities | securities | Total | securities | securities | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Income from investments | ||||||
| Dividend income | 968 | 193 | 1,161 | 721 | 88 | 809 |
| Interest income | 1 | 2,659 | 2,660 | 62 | 3,137 | 3,199 |
| Total income | 969 | 2,852 | 3,821 | 783 | 3,225 | 4,008 |
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.
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. A redemption premium of £nil (2020: £nil) was received in the year ended 30 September 2021.
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.
In accordance with FRS 102, dividends are recognised as a liability in the period in which they are declared.
The 40,593,158 (2020: 23,446,326) ordinary shares were issued at an average price of 81.23p (2020: 78.525p).
During the year the Company bought back into treasury 5,685,643 (2020: 4,421,929) ordinary shares, representing 2.30 (2020: 1.78) per cent of the ordinary shares in circulation at the beginning of the financial year. During the year the Company also sold 815,000 (2020: 600,000) shares from treasury.
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:
| Distributable reserves | Non-distributable reserves | |||||
|---|---|---|---|---|---|---|
| Capital | Revenue | Share Revaluation | ||||
| reserve | reserve | Total | premium | reserve* | Total | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| At 1 October 2020 | 75,290 | 2,216 | 77,506 | 46,775 | 30,890 | 77,665 |
| Gross proceeds of share issues | – | – | – | 28,915 | – | 28,915 |
| Purchase of shares for treasury | (4,536) | – | (4,536) | – | – | – |
| Sale of shares from treasury | 651 | – | 651 | – | – | – |
| Expenses of share issue and buybacks | (23) | – | (23) | (1,459) | – | (1,459) |
| Reallocation of prior year unrealised gains/losses# | 9,390 | – | 9,390 | – | (9,390) | (9,390) |
| Realised gain on disposal of investments# | 3,090 | – | 3,090 | – | – | – |
| Net increase in value of investments# | – | – | – | – | 55,981 | 55,981 |
| Management fee charged to capital# | (4,272) | – | (4,272) | – | – | – |
| Taxation relief from capital expenses# | 108 | – | 108 | – | – | – |
| Profit after taxation# | – | 1,624 | 1,624 | – | – | – |
| Dividends paid in the year | (16,000) | (2,082) | (18,082) | – | – | – |
| At 30 September 2021 | 63,698 | 1,758 | 65,456 | 74,231 | 77,481 | 151,712 |
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. When shares are reissued from treasury the original cost is allocated to the capital reserve with any gains allocated to share premium. 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.
A reconciliation of the tax charge/(credit) to the profit before taxation is shown below:
| Year ended Year ended 30 September 2021 30 September 2020 |
||||||
|---|---|---|---|---|---|---|
| Revenue £'000 |
Capital £'000 |
Total £'000 |
Revenue £'000 |
Capital £'000 |
Total £'000 |
|
| Profit on ordinary activities before taxation | 1,732 | 54,799 | 56,531 | 2,256 | 5,445 | 7,701 |
| Corporation tax at 19.0 per cent (2020: 19.0 per cent) | 329 | 10,412 | 10,741 | 429 | 1,035 | 1,464 |
| Effect of: | ||||||
| Non-taxable gains | – | (11,223) | (11,223) | – | (1,649) | (1,649) |
| Non-taxable dividend income | (221) | – | (211) | (154) | – | (154) |
| Losses carried forward | – | 703 | 703 | – | 339 | 339 |
| Tax charge/(credit) for the year | 108 | (108) | – | 275 | (275) | – |
At 30 September 2021 the Company had unrealised losses of £18,894,527 (2020: £15,321,306). A deferred tax asset of £3,589,960 (2020: £2,911,048) has not been recognised because the Company is not expected to generate taxable income in a future year in excess of the deductible expenses of that future year. 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.
| For the year ended 30 September 2021 | £'000 |
|---|---|
| 271,466,654 ordinary shares of 10p each listed at 30 September 2020 | 27,146 |
| 40,593,158 ordinary shares of 10p each issued during the year | 4,060 |
| 312,059,812 ordinary shares of 10p each listed at 30 September 2021 | 31,206 |
| 24,215,084 ordinary shares of 10p each held in treasury at 30 September 2020 | (2,421) |
| 5,685,643 ordinary shares of 10p each repurchased during the year and held in treasury | (569) |
| 815,000 ordinary shares of 10p each sold from treasury during the year | 81 |
| 29,085,727 ordinary shares of 10p each held in treasury at 30 September 2021 | (2,909) |
| 282,974,085 ordinary shares of 10p each in circulation* at 30 September 2021 | 28,297 |
| For the year ended 30 September 2020 | £'000 |
| 248,020,328 ordinary shares of 10p each listed at 30 September 2019 | 24,802 |
| 23,446,326 ordinary shares of 10p each issued during the year | 2,344 |
| 271,466,654 ordinary shares of 10p each listed at 30 September 2020 | 27,146 |
| 20,393,155 ordinary shares of 10p each held in treasury at 30 September 2019 | (2,039) |
| 4,421,929 ordinary shares of 10p each repurchased during the year and held in treasury | (442) |
| 600,000 ordinary shares of 10p each sold from treasury during the year | 60 |
| 24,215,084 ordinary shares of 10p each held in treasury at 30 September 2020 | (2,421) |
| 247,251,570 ordinary shares of 10p each in circulation* at 30 September 2020 | 24,725 |
* Carrying one vote each.
UK corporation tax payable is provided on taxable profits at the current rate.
Provision is made for deferred taxation, without discounting, on all timing differences and is calculated using substantively enacted tax rates.
This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted.
As at 30 September 2021, each unquoted company has been classified as having a higher, medium or lower level of estimation uncertainty by considering a range of factors including the availability and extent of cash resources, and the potential disruption to business activities caused by the COVID-19 pandemic and associated government intervention. In addition, the impact of COVID-19 on the relevant industry, liquidity concerns for the specific company, and operational impacts on the business were also considered in arriving at the level of estimation uncertainty. For example, we have classified investments in the casual dining and travel sectors as higher risk as the impact of COVID-19 on these industries has been particularly severe. There is higher uncertainty around the estimated sustainable earnings of these businesses, and the extent of their cash resources, and therefore there are a larger range of possible outcomes from the valuation of these investments.
A greater sensitivity factor has been applied to those investments assessed as having a higher level of estimation uncertainty. The sensitivities applied illustrate the impact of varying the key inputs by the levels specified, however it is possible that by applying reasonable alternative assumptions to individual investments, the fair value may vary to a greater extent than that illustrated. A higher sensitivity of 30 per cent has been applied to the companies considered to have the highest level of estimation uncertainty, to reflect that their valuation is much more uncertain and challenging to predict than for the medium and lower risk companies, where a sensitivity of between 20 per cent and 5 per cent has been applied respectively.
The table below has split out each risk category and applied both upside and downside sensitivities to the key variable inputs. The sensitivities give an indication of the effect of changing one or more of the inputs to these valuations, and the impact of increased volatility depending on exposure to the future and current effects of COVID-19. The valuation has then been recalculated using this adjusted key variable input, in order to determine the impact on the fair value of the Company's investment. The structure of the investment will vary between investee companies, and therefore the impact on the investment's fair value will vary. For example, the Company holds a preferred, or priority position, in many of the investee companies and therefore in these cases may be more protected from severe downside scenarios.
As at 30 September 2021
| Risk Sensitivity | Fair Value |
% of net |
Positive impact Negative impact | % of net |
|||||
|---|---|---|---|---|---|---|---|---|---|
| Security | Valuation basis | Key variable inputs | Level | % | £'000s £'000s assets £'000 assets | ||||
| Unquoted | Earnings multiple Estimated sustainable earnings Selection of comparable companies Application of illiquidity discount Probability estimation of Liquidation event |
High Medium Low |
+/–30 | +/–20 28,106 6,571 +/–10 19,835 1,409 0.6 (1,370) (0.6) |
4,979 2,246 0.9 (2,344) (0.9) 2.6 (7,149) (2.9) |
||||
| Price of recent investment |
Latest funding round price | Medium Low |
+/–10 | 1,509 +/–5 5,209 |
151 357 |
0.1 | (151) 0.1 (452) (0.2) |
(0.1) | |
| Other | Low | +/–5 | 334 | 17 0.0 | (17) | 0.0 |
A sensitivity has been performed for quoted AIM investments, which are valued at the latest share price set by the market. A sensitivity of +/– 20 per cent has been applied to the fair value of £102.4 million (2020: £71.5 million), reflecting the level of volatility in financial markets in 2021 and 2020. A movement of +/– 20 per cent would cause an increase or decrease of £20.5 million to the fair value of the quoted AIM portfolio (2020: £14.8 million).
A sensitivity has also been performed for the Company's investments into the Micro Cap, Multi Cap and Small Cap funds, which are valued at the latest share price set by the market. A sensitivity of +/– 20 per cent has been applied to the fair value of £49.3 million (2020: £29.3 million), reflecting the level of volatility in financial markets in 2021 and 2020. A movement of +/– 20 per cent would cause an increase or decrease of £9.9 million to the fair value of these investments (2020: £5.9 million).
For the year ended 30 September 2020
| Distributable reserves | Non-distributable reserves | |||||||
|---|---|---|---|---|---|---|---|---|
| Capital | Revenue | Share Revaluation | ||||||
| reserve | reserve | Total | premium | reserve* | Total | |||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||
| At 1 October 2019 | 92,316 | 1,575 | 93,891 | 31,191 | 25,492 | 56,683 | ||
| Gross proceeds of share issues | – | – | – | 16,091 | – | 16,091 | ||
| Purchase of shares for treasury | (3,186) | – | ( 3,186) | – | – | – | ||
| Sale of shares from treasury | 420 | – | 420 | – | – | – | ||
| Expenses of share issue and buybacks | (16) | – | (16) | (507) | – | (507) | ||
| Other costs charged to capital | (1) | – | (1) | – | – | – | ||
| Reallocation of prior year unrealised gains# | 3,344 | – | 3,344 | – | ( 3,344) | ( 3,344) | ||
| Realised gain on disposal of investments# | (62) | – | (62) | – | – | – | ||
| Net increase in value of investments# | – | – | – | – | 8,742 | 8,742 | ||
| Management fee charged to capital# | (3,235) | – | ( 3,235) | – | – | – | ||
| Taxation relief from capital expenses# | 275 | – | 275 | – | – | – | ||
| Profit after taxation# | – | 1,624 | 1,624 | – | – | – | ||
| Dividends paid in the year | (14,565) | (1,340) | (15,905) | – | – | – | ||
| At 30 September 2020 | 75,290 | 2,216 | 77,506 | 46,775 | 30,890 | 77,665 |
* Changes in fair value of investments are dealt with in this reserve.
# The total of these items is £56,531,000, (2020: £7,701,000) which agrees to the total profit for the year.
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.
The Company does not have any externally imposed capital requirements.
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 in the full Annual Report and Audited Financial Statements.
Investments in companies listed on the AIM market usually involve a higher risk than investments in larger companies quoted on a recognised stock exchange. The spread between the buying and selling price of such shares may be wide and the price used for valuation may be limited and many may not be achievable. The valuation of the portfolios and opportunities for realisation of AIM-traded investments within the portfolios may also depend on stock market conditions.
The Company aims to reduce these risks by diversifying the portfolio across business sectors and asset classes. The Board monitors the portfolio on a quarterly basis.
Investments in unquoted companies, by their nature, usually involve a higher degree of risk than investments in companies quoted on a recognised stock exchange. The fair valuation of these unquoted investments is influenced by the estimates, assumptions and judgements made in the fair valuation process (see 2.3 above).
A liquidation event is typically a company sale or an Initial Public Offering ("IPO"). The probability of a company sale versus an IPO is typically estimated from the outset to be 50:50 if there has been no indication by the company of pursuing either of these routes. This weighting is then adjusted as either scenario becomes more or less likely to occur.
The Company has the following investments in fixed and floating rate financial assets:
| As at 30 September 2021 | As at 30 September 2020 | |||||
|---|---|---|---|---|---|---|
| Weighted | Weighted | |||||
| Weighted | average | Weighted | average | |||
| average | time for | average | time for | |||
| Total | interest | which rate | Total | interest | which rate | |
| investment | rate | is fixed investment | rate | is fixed | ||
| £'000 | % | Years | £'000 | % | Years | |
| Fixed rate loan note securities | 12,102 | 7.58 | 3.20 | 15,773 | 7.82 | 1.99 |
| Floating rate sterling liquidity funds | 26,390 | – | – | 30,084 | – | – |
| Cash at bank and on deposit | 12,312 | – | – | 3,108 | – | – |
| 50,804 | 48,965 |
The fixed rate loan notes are not subject to interest rate risk and would therefore not impact the net assets. Movements in interest rates would not significantly affect net assets attributable to the Company's shareholders and total profits due to the interest rate income received from floating rate notes being wholly immaterial.
Credit risk refers to the risk that a counterparty will default on its obligation resulting in a financial loss to the Company. The 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 | ||
| 2021 | 2020 | |
| £'000 | £'000 | |
| Cash at bank and on deposit | 12,312 | 3,108 |
| Interest, dividends and other receivables | 109 | 571 |
| 12,421 | 3,679 |
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 majority of cash held by the Company is held by JPM. The board monitors the Company's risk by reviewing regularly the internal control reports. Should the credit quality or the financial position of the 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 2021 or 2020. No individual investment in a portfolio company exceeded 6.7 per cent of the net assets attributable to the Company's shareholders at 30 September 2021 (2020: 4.9 per cent).
The Company's financial instruments include investments in unquoted companies which are not traded in an organised public market, all of which generally may be illiquid. AIM traded equity investments also carry a degree of liquidity risk. 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.
As at 30 September 2020
| Positive impact Negative impact | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Security | Valuation basis | Key variable inputs | Level | Risk Sensitivity % |
Fair Value |
£'000s £'000s assets £'000 assets | % of net | % of net | |
| Unquoted | Earnings multiple Estimated sustainable earnings Selection of comparable companies Application of illiquidity discount Probability estimation of Liquidation event |
High Medium Low |
+/–30 +/–10 |
+/–20 16,828 6,525 3.6 (4,047) 5,367 |
9,158 2,334 | 632 0.3 | 1.3 (4,672) (2.6) (2.2) (407) (0.2) |
||
| Price of recent investment |
Latest funding round price | Low | +/–5 8,046 4,481 | 2.5 (448) (0.2) | |||||
| Other | Low | +/–5 | 7,043 | 352 | 0.2 (352) (0.2) |
The key variable inputs applicable to each valuation basis will vary dependent on the particular circumstances of each unquoted company valuation. Where there has been a recent transaction, such as an initial investment being made into the company, or where there has been a subsequent external funding round, the key variable input will be the last funding round price. Where this is not the case, the valuation has been based on a multiple of estimated sustainable earnings. An explanation of each of the key variable inputs is provided below and includes an indication of the range in value for each input, where relevant.
The latest funding round price is the key variable input in the valuation of a company when there has been a recent investment either by the Company or by another investor. This transaction provides evidence of the price an independent third party would be willing to pay for the investment. There is lower estimation uncertainty where this third party is an external investor, and higher estimation uncertainty where this is an internal investor (i.e. where the investor already has an investment in the company).
The selection of sustainable revenue or earnings will depend upon whether the company is sustainably profitable or not, and where it is not then revenues will be used in the valuation. The valuation approach may use prior year actuals, the last 12 months, or a forecast of earnings where deemed appropriate. The valuation approach will typically assess companies based on the prior year actuals or last 12 months of revenue or earnings, as this represents the most recently available trading information and therefore is viewed as the most reliable. Where the company has a history of accurate forecasting, or where there is a change in circumstance at the business which will impact earnings going forward, then a forecast or budget will be deemed most appropriate.
The selection of comparable companies is assessed individually for each investment at the point of investment, and at each valuation thereafter. The key criteria in selecting appropriate comparable companies are the industry sector, the business model, and the respective revenue and earnings growth rates of the company. Typically up to 15 comparable companies will be selected for each investment to derive the adopted revenue or earnings multiple.
The earnings multiples can be derived from either listed companies with similar characteristics or recent comparable transactions. The value of the unquoted element of the portfolio may therefore also indirectly be affected by price movements on the listed exchanges.
An illiquidity discount is applied to the majority of unquoted investments, reflecting that the Company usually holds a minority stake and that the realisation of the investment may require cooperation on the timing and sale price from other stakeholders. The illiquidity discount applied can range from 10 per cent to 30 per cent, depending upon the ownership percentage the Company holds in the investment and the Company's alignment with other institutional investors.
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 is a closed-end fund, assets do not need to be liquidated to meet redemptions, and sufficient liquidity is maintained to meet obligations as they fall due.
At the year end the Company had financial liabilities of £2,147,000 (2020:£1,294,000). All financial liabilities were due within three months and were undiscounted (2020:same).
The Company maintains sufficient investments in cash and readily realisable securities to pay accounts payable and accrued expenses. At 30 September 2021, these investments were valued at £38,702,000 (2020: £33,191,000).
The Company has chosen not to rebut the presumption that the following holdings are investments in associates, owing to the proportion of equity held and representation on the Board representing significant influence over the operations of the company. The investments held are held as part of an investment portfolio, and are therefore measured at fair value through profit and loss, as detailed in note 2.3 rather than using the equity method, as permitted by Section 14 of FRS 102:
| Name | Location | Class of Shares held |
% of Equity |
Profit (£m) | Net Assets (£m) |
Results for year ended |
|---|---|---|---|---|---|---|
| Happy Days Consultancy | UK | A Ordinary & A Preference |
35.7 | (3.0) | (12.7) | 31 December 2020 |
Related party transactions include Management, Secretarial, Accounting and Performance fees payable to the Manager, Gresham House Asset Management Ltd, as disclosed in notes 2.6 and 2.8, and fees paid to the Directors along with their shareholdings as disclosed in the Directors' Remuneration Report. In addition, the Manager operates a VCT Incentive Scheme, detailed in the Management retention section of the Strategic Report on page 26, whereby members and staff of the Manager are entitled to participate in all eligible unquoted investments alongside the Company.
During the year, Gresham House Asset Management Ltd received £254,000 (2020: £204,000) of advisory fees, £375,000 (2020: £360,000) of directors' fees for services provided to companies in the investment portfolio and incurred abort costs of £8,000 (2020: £11,000) with respect to investments attributable to Baronsmead Second Venture Trust plc.
A related party relationship exists between Baronsmead Second Venture Trust plc and Happy Days Consultancy, owing to the significant influence held over the operations of the company. As at 30 September 2021, the loan from the VCT to the company stood at £3,510,000, including £1,122,000 of capitalised interest.
The Company also holds an investment in Gresham House plc, as part of its quoted portfolio. This investment was made in November 2014, prior to the change of Manager. For further details on this, please refer to the Full Investment Portfolio in the Appendices.
The Company has one reportable segment being investing in primarily a portfolio of UK growth businesses, whether unquoted or traded on AIM.
As at 30 September 2021, the Company has commitments to invest up to £1.0 million, of which the full £1.0 million has been drawn as at the date of this report.
The following events occurred between the balance sheet date and the signing of these financial statements:
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 unquoted and quoted companies sourced by the Manager. Following the
Manager's acquisition of the Mobeus VCTs in September 2021, the Company will also co-invest alongside the Mobeus VCTs in new unquoted VCT qualifying investments. All new qualifying AIM dealflow will continue to be exclusively allocated between the Company and Baronsmead Venture Trust plc.
The Manager's staff invest in unquoted investments alongside the Company. This arrangement 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.
| Ordinary share | ||||||||
|---|---|---|---|---|---|---|---|---|
| Total net assets |
NAV per share |
Mid share price |
NAV TR* per share |
Ongoing charges |
||||
| Year end | (£m) | (p) | (p) | (p) | (%)† | |||
| 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 | 94.61 | 89.50 | 313.53 | 2.7 | |||
| 30/09/2018 | 199.4 | 92.10 | 87.75 | 330.59 | 2.7 | |||
| 30/09/2019 | 175.4 | 77.05 | 74.50 | 303.80 | 2.7 | |||
| 30/09/2020 | 182.3 | 73.74 | 69.50 | 316.44 | 2.7 | |||
| 30/09/2021 | 248.4 | 87.77 | 85.00 | 406.18 | 2.7 |
* Net asset value total return (gross dividends reinvested). Source: Gresham House Asset Management Ltd. † Figures from 31 December 2012 onwards are based on the new AIC guidelines for the calculation of ongoing charges.
| Cash | Income tax | Net cash | Cumulative dividends |
Return on cash |
|
|---|---|---|---|---|---|
| invested | reclaim | invested | paid* | invested | |
| Year subscribed | (p) | (p) | (p) | (p) | (%) |
| 2001 (January) | 100.0 | 20.0 | 80.0 | 154.3 | 174.3 |
| 2005 (March) - C share | 100.0 | 40.0 | 60.0 | 110.6 | 150.6 |
| 2010 (March) | 103.1 | 30.9 | 72.2 | 106.0 | 132.8 |
| 2012 (December) | 117.4 | 35.2 | 82.2 | 88.0 | 104.9 |
| 2014 (March) | 112.4 | 33.7 | 78.7 | 68.0 | 90.5 |
| 2016 (February) | 107.2 | 32.2 | 75.0 | 51.5 | 78.1 |
| 2017 (October) | 97.5 | 29.2 | 68.2 | 31.5 | 62.3 |
| 2019 (February) | 85.3 | 25.6 | 59.7 | 24.0 | 58.1 |
| 2019 (November) | 78.9 | 23.7 | 55.2 | 16.5 | 50.9 |
| 2020 (January) | 84.8 | 25.4 | 59.4 | 16.5 | 49.5 |
| 2020 (February) | 82.5 | 24.8 | 57.7 | 13.0 | 45.8 |
| 2020 (March) | 64.3 | 19.3 | 45.0 | 13.0 | 50.2 |
| 2020 (November) | 77.9 | 23.4 | 54.5 | 10.0 | 42.8 |
| 2020 (December) | 80.9 | 24.3 | 56.6 | 10.0 | 42.4 |
| 2021 (January) | 84.4 | 25.3 | 59.1 | 10.0 | 41.8 |
| 2021 (February) | 82.2 | 24.7 | 57.5 | 6.5 | 37.9 |
| 2021 (March) | 84.9 | 25.5 | 59.4 | 6.5 | 37.7 |
Note 1 - 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 3.5p proposed final dividend.
| Ordinary share | |||||
|---|---|---|---|---|---|
| Year ended | Revenue (p) |
(p) | Dividend history Capital per ordinary share (p) |
Cumulative (p) |
Average total dividend dividends per ordinary share (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 |
| 30/09/2018 | 0.15 | 7.35 | 7.50 | 134.80 | 7.59 |
| 30/09/2019 | 0.65 | 5.85 | 6.50 | 141.30 | 7.54 |
| 30/09/2020 | 0.60 | 5.90 | 6.50 | 147.80 | 7.48 |
| 30/09/2021* | 0.40 | 6.10 | 6.50 | 154.30 | 7.44 |
* Includes proposed final dividend of 3.5p. Estimated revenue and capital split based on number of shares at 30 September 2021.
Source: Gresham House Asset Management Ltd
| % of equity | ||||||||
|---|---|---|---|---|---|---|---|---|
| Original Accounting | 2021 | 30 September 30 September 2020 |
held by Baronsmead % of equity |
|||||
| book cost† book cost† | Fair value | Fair value | % of net Second Venture | held by | ||||
| Company | Sector | £'000 | £'000 | £'000 | £'000 | assets | Trust plc | all funds# |
| AIM (continued) | ||||||||
| TPX Impact Holdings plc | Technology | 660 | 660 | 2,229 | 981 | 0.9 | 1.1 | 2.0 |
| CloudCall Group plc | Technology | 3,214 | 3,084 | 2,028 | 2,450 | 0.8 | 7.4 | 13.5 |
| Vianet Group plc | Business Services | 2,092 | 1,724 | 1,874 | 1,493 | 0.8 | 5.7 | 16.8 |
| Belvoir Lettings plc | Consumer Markets | 919 | 826 | 1,860 | 1,101 | 0.7 | 2.0 | 7.7 |
| Begbies Traynor Group plc | Business Services | 545 | 513 | 1,625 | 1,018 | 0.7 | 0.8 | 3.7 |
| Everyman Media Group plc | Consumer Markets | 956 | 1,010 | 1,591 | 842 | 0.6 | 1.3 | 4.0 |
| Beeks Financial Cloud Group plc | Technology | 413 | 413 | 1,584 | 743 | 0.6 | 1.5 | 2.7 |
| Open Orphan plc | Healthcare & Education | 1,445 | 1,437 | 1,511 | 1,381 | 0.6 | 1.1 | 1.9 |
| Driver Group plc | Business Services | 1,529 | 1,747 | 1,467 | 1,378 | 0.6 | 5.6 | 20.3 |
| Crossword Cybersecurity plc | Technology | 1,282 | 1,282 | 1,368 | – | 0.6 | 5.7 | 11.0 |
| SEEEN plc | Technology | 1,590 | 1,590 | 1,307 | 671 | 0.5 | 7.1 | 13.3 |
| Eden Research plc | Business Services | 1,375 | 1,380 | 1,225 | 1,072 | 0.5 | 4.0 | 7.3 |
| Deepverge plc | Healthcare & Education | 1,590 | 1,590 | 1,219 | – | 0.5 | 2.5 | 4.6 |
| Rosslyn Data Technologies plc | Technology | 1,407 | 1,407 | 1,143 | 1,758 | 0.5 | 8.6 | 28.3 |
| Fusion Antibodies plc | Healthcare & Education | 660 | 660 | 991 | 1,229 | 0.4 | 3.1 | 5.7 |
| One Media iP Group plc | Technology | 1,008 | 912 | 895 | 856 | 0.4 | 5.9 | 10.8 |
| SysGroup plc | Technology | 1,579 | 1,578 | 886 | 785 | 0.4 | 5.1 | 28.3 |
| Merit Group plc | Technology | 4,253 | 4,253 | 808 | 1,439 | 0.3 | 7.1 | 11.7 |
| Fulcrum Utility Services Ltd | Business Services | 438 | 1,650 | 773 | 1,331 | 0.3 | 1.6 | 5.0 |
| Crimson Tide plc | Technology | 668 | 668 | 601 | – | 0.2 | 3.4 | 6.4 |
| Science In Sport plc | Consumer Markets | 352 | 330 | 452 | 214 | 0.2 | 0.4 | 0.8 |
| Gresham House plc* | Business Services | 137 | 145 | 432 | 357 | 0.2 | 0.1 | 0.2 |
| Tasty plc | Consumer Markets | 2,033 | 6,085 | 350 | 95 | 0.1 | 3.5 | 14.2 |
| Scholium Group plc | Consumer Markets | 1,100 | 682 | 330 | 330 | 0.1 | 8.1 | 14.7 |
| Poolbeg Pharma plc | Healthcare & Education | 51 | 51 | 242 | – | 0.1 | 0.5 | 0.9 |
| Gama Aviation plc | Business Services | 1,004 | 1,171 | 211 | 181 | 0.1 | 0.9 | 1.7 |
| Totally plc | Healthcare & Education | 86 | 197 | 173 | 88 | 0.1 | 0.3 | 0.5 |
| KRM22 plc | Technology | 550 | 550 | 154 | 198 | 0.1 | 2.1 | 3.7 |
| LoopUp Group plc | Technology | 616 | 640 | 151 | 1,232 | 0.1 | 1.1 | 2.0 |
| Zoo Digital Group plc | Technology | 817 | 586 | 121 | 61 | 0.0 | 0.1 | 0.2 |
| CloudCoco Group plc | Technology | 535 | 359 | 49 | 37 | 0.0 | 0.5 | 0.8 |
| I-nexus Global plc Total AIM |
Technology | 688 48,738 |
688 63,064 |
48 102,394 |
44 | 0.0 41.2 |
2.9 | 5.4 |
| Listed on LSE | ||||||||
| Hawkwing plc | Business Services | 2,136 | 3,429 | 34 | 42 | 0.0 | 1.1 | 28.3 |
| Total listed | 2,136 | 3,429 | 34 | 0.0 | ||||
| Collective investment vehicles | ||||||||
| LF Gresham House UK Micro Cap Fund | 6,189 | 10,335 | 34,507 | 23,617 | 13.9 | |||
| BlackRock Sterling Liquidity Fund | 13,195 | 13,195 | 13,195 | 15,042 | 5.3 | |||
| JPMorgan Sterling Liquidity Fund | 13,195 | 13,195 | 13,195 | 15,042 | 5.3 | |||
| LF Gresham House UK Multi Cap Income Fund | 7,554 | 7,554 | 9,028 | 3,084 | 3.7 | |||
| LF Gresham House UK Smaller Companies Fund | 4,125 | 4,125 | 5,776 | 2,582 | 2.3 | |||
| Total collective investment vehicles | 44,258 | 48,404 | 75,701 | 30.5 | ||||
| Total investments | 139,372 | 160,619 | 238,100 | 95.9 | ||||
| Net current assets | 10,274 | 4.1 | ||||||
| Net assets | 248,374 | 100.0 | ||||||
| † The original cost column provides the combined cost of investments made by BVCT3, BVCT4 and BVCT5 prior to the merger of the three VCT's to become BSVT. This is included for information purposes for shareholders reviewing the portfolio. |
The accounting cost column ties into the investment note on page 69 of these accounts. For Investments owned before the assets of BVCT 4 and BVCT 5 were acquired by BVCT 3 the accounting book cost is a sum of the original cost of the investments held in BVCT 3 and the market value of the investment in BVCT 4 and BVCT 5 at the date of each of the mergers.
# All funds managed by the same manager, Gresham House Asset Management Ltd.
* Acquired November 2014, pre change of Investment Manager on 30 November 2018.
| % of equity | ||||||||
|---|---|---|---|---|---|---|---|---|
| Original Accounting | 30 September 30 September 2021 |
2020 | held by Baronsmead % of equity |
|||||
| book cost† book cost† | Fair value | Fair value | % of net Second Venture | held by | ||||
| Company | Sector | £'000 | £'000 | £'000 | £'000 | assets | Trust plc | all funds# |
| Unquoted | ||||||||
| Carousel Logistics Ltd | Business Services | 2,336 | 2,967 | 10,699 | 7,930 | 4.3 | 14.7 | 26.7 |
| IWP Holdings Ltd | Business Services | 1,587 | 1,587 | 5,679 | 1,640 | 2.3 | 4.2 | 9.0 |
| Happy Days Consultancy Ltd | Healthcare & Education | 4,180 | 4,482 | 3,510 | 3,326 | 1.4 | 35.7 | 64.9 |
| eConsult Ltd | Healthcare & Education | 2,599 | 2,599 | 3,491 | – | 1.4 | 5.2 | 11.4 |
| Custom Materials Ltd | Technology | 2,437 | 2,437 | 3,290 | 4,593 | 1.3 | 7.7 | 14.1 |
| Clarilis Ltd | Technology | 1,819 | 1,819 | 2,723 | 1,819 | 1.2 | 7.6 | 16.7 |
| Yappy Ltd | Consumer Markets | 954 | 954 | 2,662 | 2,049 | 1.1 | 11.5 | 24.7 |
| Scurri Web Services Ltd | Technology | 2,293 | 2,293 | 2,332 | – | 0.9 | 6.9 | 14.7 |
| Rezatec Ltd | Technology | 1,620 | 1,620 | 1,921 | 1,735 | 0.8 | – | – |
| SecureCloud+ Ltd | Technology | 789 | 789 | 1,817 | 1,533 | 0.7 | 8.8 | 16.6 |
| Patchworks Ltd | Technology | 1,716 | 1,716 | 1,716 | – | 0.7 | 11.4 | 25.0 |
| SilkFred Ltd | Consumer Markets | 966 | 966 | 1,707 | 966 | 0.7 | 2.8 | 5.1 |
| Armstrong Craven Ltd | Business Services | 664 | 1,335 | 1,649 | – | 0.7 | 10.3 | 18.7 |
| Metrion Biosciences Ltd | Healthcare & Education | 1,192 | 1,192 | 1,568 | – | 0.6 | 13.2 | 28.2 |
| Tribe Digital Holdings Pty Ltd | Technology | 1,067 | 1,067 | 1,563 | 945 | 0.6 | 3.5 | 6.7 |
| Airfinity Ltd | Healthcare & Education | 1,559 | 1,559 | 1,559 | – | 0.6 | 6.0 | 13.0 |
| Glisser Ltd | Business Services | 1,457 | 1,457 | 1,549 | 662 | 0.6 | 7.6 | 16.2 |
| Cisiv Ltd | Technology | 789 | 789 | 1,322 | 759 | 0.5 | 9.2 | 17.3 |
| Vinoteca Ltd | Consumer Markets | 1,054 | 1,054 | 1,074 | 708 | 0.4 | 6.7 | 14.3 |
| Counting Ltd | Business Services | 1,059 | 1,059 | 1,055 | – | 0.4 | 2.5 | 5.3 |
| Pointr Ltd | Technology | 526 | 526 | 979 | 813 | 0.4 | 2.7 | 5.2 |
| Equipsme (Holdings) Ltd | Business Services | 949 | 949 | 949 | 579 | 0.4 | 7.1 | 14.0 |
| Your Welcome Ltd | Technology | 1,030 | 1,030 | 872 | 1,031 | 0.4 | 8.3 | 15.6 |
| RevLifter Ltd | Technology | 779 | 779 | 811 | – | 0.3 | 4.7 | 10.2 |
| Munnypot Ltd | Technology | 562 | 562 | 562 | 515 | 0.2 | 1.5 | 2.7 |
| TravelLocal Ltd | Consumer Markets | 1,325 | 1,325 | 530 | 199 | 0.2 | 1.9 | 4.2 |
| Panthera Biopartners Ltd | Healthcare & Education | 260 | 260 | 438 | 260 | 0.2 | 4.0 | 8.8 |
| Evotix Ltd | Technology | 423 | 423 | 423 | – | 0.2 | 0.7 | 1.3 |
| Funding Xchange Ltd | Business Services | 795 | 795 | 397 | 795 | 0.2 | 3.7 | 8.0 |
| Rainbird Technologies Ltd | Technology | 789 | 789 | 395 | 395 | 0.2 | 3.3 | 6.3 |
| RockFish Group Ltd | Consumer Markets | 789 | 789 | 395 | 395 | 0.2 | 6.6 | 12.5 |
| Key Travel Ltd | Business Services | 255 | 255 | 334 | 309 | 0.1 | 0.0 | 0;0 |
| CMME Group Ltd | Consumer Markets | 1,136 | 1,204 | – | 904 | 0.0 | – | – |
| Samuel Knight International Ltd | Business Services | 795 | 795 | – | – | 0.0 | 7.0 | 15.0 |
| 42,550 | 44,222 | 59,971 | 24.2 | |||||
| Delisted (previously AIM) | ||||||||
| InterQuest Group plc | Business Services | 620 | 726 | – | – | 0.0 | 2.2 | 4.3 |
| Mi-Pay Group plc | Business Services | 800 | 474 | – | – | 0.0 | 1.4 | 2.8 |
| MXC Capital Ltd | Business Services | 270 | 300 | – | – | 0.0 | 0.3 | 0.6 |
| 1,690 | 1,500 | – | – | 0.0 | ||||
| Total unquoted | 44,240 | 45,722 | 59,971 | 24.2 | ||||
| AIM | ||||||||
| Cerillion plc | Technology | 1,636 | 1,809 | 16,572 | 8,858 | 6.7 | 7.3 | 13.3 |
| Netcall plc | Technology | 2,616 | 5,983 | 12,869 | 5,473 | 5.2 | 9.9 | 23.9 |
| Ideagen plc | Technology | 720 | 1,063 | 8,422 | 5,133 | 3.4 | 1.0 | 1.9 |
| IDOX plc | Technology | 1,028 | 2,972 | 7,753 | 5,024 | 3.1 | 2.5 | 4.9 |
| Anpario plc | Healthcare & Education | 662 | 2,239 | 5,561 | 3,739 | 2.2 | 4.1 | 6.0 |
| Inspired plc | Business Services | 861 | 2,682 | 4,872 | 3,832 | 2.0 | 2.8 | 19.8 |
| Bioventix plc | Healthcare & Education | 309 | 940 | 4,594 | 4,711 | 1.8 | 2.3 | 4.9 |
| Access Intelligence plc | Business Services | 716 | 716 | 2,637 | 1,336 | 1.1 | 1.4 | 7.3 |
| PCI-PAL plc | Technology | 1,345 | 1,345 | 2,557 | 1,534 | 1.0 | 6.0 | 10.9 |
| IXICO plc | Healthcare & Education | 825 | 825 | 2,298 | 2,740 | 0.9 | 6.1 | 11.1 |
| Property Franchise Group plc | Consumer Markets | 838 | 1,032 | 2,281 | 1,593 | 0.9 | 2.6 | 7.9 |
| Diaceutics plc | Healthcare & Education | 1,590 | 1,590 | 2,280 | 2,322 | 0.9 | 2.5 | 11.4 |
| NAV total return | |||||
|---|---|---|---|---|---|
| reconciliation | Q1 | Q2 | Q3 | Q4 | |
| Opening NAV total return (p) | 316.4 | 345.7 | 371.9 | 407.5 | |
| NAV movement (p) | 9.0 | 3.1 | 9.4 | (3.6) | |
| Dividend (p) | 0.0 | 4.3 | 0.0 | 3.3 | |
| Total return (p) | 9.0 | 7.4 | 9.4 | (0.3) | |
| Change in NAV total return (p) | 29.3 | 26.1 | 35.6 | (1.3) | |
| Closing NAV total return (p) | 345.7 | 371.9 | 407.5 | 406.2 | |
| AIC methodology: The NAV total return to the investor, including the original amount invested (rebased to 100) from launch, |
assuming that dividends paid were reinvested at the NAV of the Company at the time the shares were quoted ex-dividend
| Annual dividend yield | |||
|---|---|---|---|
| reconciliation | 2021 | 2020 | |
| Interim dividend | 3.0p | 3.0p | |
| Recommended final dividend | 3.5p | 3.5p | |
| Total dividend | 6.5p | 6.5p | |
| Opening NAV (after final dividend) | 70.2p | 73.6p | |
| Dividend yield | 9.3% | 8.8% |
| AIM | The Alternative Investment Market, a sub-market of the London Stock Exchange, designed to help smaller companies access capital from the public market. |
|---|---|
| Annual Dividend Yield | The rate of dividend paid/declared for financial year divided by opening net asset value per share. |
| Book Cost (Original) | Total acquisition value, including transaction costs, less the value of any disposals or capitalised distributions allocated on a weighted average cost basis. |
| Book Cost (Accounting) | The original book cost of an asset, rebased to the value at which it was used in a subsequent transaction, such as a transfer between entities. |
| Collective Investment Vehicle | An entity which allows investors to pool their money, investing the pooled funds on their behalf. |
| Discount/Premium | If the share price is lower than the NAV per share, it is said to be trading at a discount. The size of the Company's discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, this situation is called a premium. |
| EBITDA | Earnings before Interest, Tax, Depreciation and Amortisation – a proxy for the cash flow generated by a business, most commonly used for businesses that do not (yet) generate operating or shareholder profits. |
| IFA | Independent Financial Advisers, professionals who offer independent advice to their clients and recommend suitable financial products. |
| Key Performance Indicators ("KPIs") | A measurable value that demonstrates how effectively the Company is achieving core business objectives. |
| NAV | The total value of all the Company's assets, at current market value, having deducted all liabilities at their carrying value. |
| NAV per share | Total Net Asset Value divided by the number of shares. |
| NAV total return | A measure showing how the Net Asset Value has performed over a period of time, taking into account both capital returns and dividends paid to shareholders. |
| Return on Cash Invested to shareholders The amount of cash returned to shareholders through income tax reclaimed, and cumulative dividends paid, expressed as a percentage of the initial investment. |
|
| Shares Held in Treasury | Shares in the Company repurchased by itself, reducing the number of freely traded shares. |
| SME | Small and medium-sized entities. These are independent companies which meet two of the three recognition criteria for small or medium companies according to EU Legislation. |
| Total Assets | All assets, both current and non-current. An asset is an economic resource owned by an entity that can lead to an increase in economic value. |
| VCT Value | The value of an investment when acquired, rebased if the holding is added to or any payment is made which causes an increase or decrease in its value. |
| 80 per cent test | Ensuring that the Company meets the requirement to hold 80 per cent of its investments in qualifying holdings. |
| Telephone: | 0800 923 1534 | This is an automated self-service system. | |
|---|---|---|---|
| It is available 24 hours a day, 7 days a week. | |||
| You should have your shareholder Reference Number ("SRN") to 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. | |||
| The Contact Centre in Bristol is available on UK business days 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 manage your own shareholding online. |
|
| You will need to register to use this service on the Investor Centre website. | |||
| You should have your SRN to hand, which is available on your 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 |
You should have your shareholder Reference Number ("SRN") to hand, which is available on your share certificate and dividend tax voucher and which you should always keep confidential for security reasons.
8.30am 5.00pm Monday to Friday.
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.
16 February 2022 Annual General Meeting.
May/June 2022 Announcement and posting of Interim report for the six months to 31 March 2022.
November/December 2022 Announcement of final results for year to 30 September 2022.
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. Gresham House Asset Management Limited does not give investment advice and the naming of companies in this report is not a recommendation to deal in them.
Many companies are aware that their shareholders have received unsolicited phone calls or correspondence concerning investment matters. These are typically from "brokers" based overseas 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's 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 below.
If you are offered unsolicited investment advice, discounted shares, a premium price for shares you own, or free company or research reports, you should take these steps before handing over any money or share certificates:
If you use an unauthorised firm to buy or sell shares or other investments, you will not have access to the Financial Ombudsman Service (https://www.financial-ombudsman.org.uk/) or Financial Services Compensation Scheme (https://www.fscs.org.uk/) if things go wrong.
If you are approached about a share scam, you should tell the FCA using the Share Fraud Reporting Form (www.fca.org.uk/consumers/report-scam-unauthorised-firm), where you can find out about the latest investment scams. You can also call the FCA Consumer Helpline on 0800 111 6768.
If you have already paid money (or otherwise dealt with share fraudsters), you should contact ActionFraud on 0300 123 2040 or use the ActionFraud (https://www.actionfraudalert.co.uk/) Online Reporting Tool.
More detailed information on this or similar activity can be found on the FCA web site.
The Registrar for Baronsmead Second Venture Trust plc is Computershare Investor Services plc ("Computershare"). The Registrar will deal with all of your queries with regard to your shareholder account, such as:
Sarah Fromson (Chairman)‡ Graham McDonald Timothy Farazmand** Malcolm Groat*†
Gresham House Asset Management Ltd
5 New Street Square London EC4A 3TW
Gresham House Asset Management Ltd 5 New Street Square London EC4A 3TW
04115341
‡ Chairman of the Nomination Committee
* Chairman of the Audit & Risk Committee
**Chairman of the Management Engagement & Remuneration Committee † Senior Independent Director
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
BDO LLP 55 Baker Street London W1U 7EU
Dickson Minto W.S. Broadgate Tower 20 Primrose Street London EC2A 2EW
PricewaterhouseCoopers LLP 1 Embankment Place London WC2N 6RH
www.baronsmeadvcts.co.uk
Baronsmead Second Venture Trust plc is managed by Gresham House Asset Management Limited 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.
Head Office 80 Cheapside, London EC2V 6EE (0)20 7382 0999 [email protected]
www.baronsmeadvcts.co.uk
Gresham House Asset Management Limited is certified to the ISO 9001 standard. © 2021 Gresham House plc.
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