Annual Financial Report y/e 30/09/2018

Extract from the Strategic Report

 

Applying the Business Model

 

This section of the Strategic Report sets out the practical steps that the Board has taken in order to apply the business model, achieve the investment objective and adhere to the investment policy. The investment policy, which is set out in full below, is designed to ensure that the Company continues to qualify and is approved as a VCT by HM Revenue and Customs.

 

Investing in the Right Companies

Investments are primarily made in companies which are substantially based in the UK, although many of these

investees may have some trade overseas. Investments are selected in the expectation that the application of private equity disciplines, including an active management style for unquoted companies, will enhance value and enable profits to be realised from planned exits.

 

The Board has delegated the management of the investment portfolio to Livingbridge. The Manager has adopted a 'top-down, sector-driven' approach to identifying and evaluating potential investment opportunities, by assessing a forward view of firstly the business environment, then the sector and finally the specific potential investment opportunity.

 

Based on its research, the Manager has selected a number of sectors that it believes will offer attractive growth prospects and investment opportunities. Diversification is also achieved by spreading investments across different asset classes and making investments for a variety of different periods.

 

The Manager's Review above provides a review of the investment portfolio and of market conditions during the year, including the main trends and factors likely to affect the future development, performance and position of the business.

 

Risk is spread by investing in a number of different businesses within different qualifying industry sectors using a mixture of securities. The maximum the Company will invest in a single company (including a collective investment vehicle) is 15 per cent of its investments by value of its investments calculated in accordance with Section 278 of the Income Tax Act 2007 (as amended) ("VCT Value"). The value of an individual investment is expected to increase over time as a result of trading progress and a continuous assessment is made of its suitability for sale.

 

The Company invests in a range of securities including, but not limited to, ordinary and preference shares, loan

stocks, convertible securities and permitted non qualifying investments as well as cash. Unquoted investments are usually structured as a combination of ordinary shares and loan stocks or preferred shares, while AIM-traded investments are primarily held in ordinary shares. Pending investment in VCT qualifying investments, the Company's cash and liquid funds are held in permitted non qualifying investments.

 

VCTs are required to comply with a number of different regulations and the Company has appointed PricewaterhouseCoopers LLP ("PwC") as VCT Tax Status Advisers to advise it on compliance with VCT requirements. PwC reviews new investment opportunities, as appropriate, and regularly reviews the investment portfolio of the Company. PwC works closely with the Manager but reports directly to the Board.

 

Environmental, Human Rights, Employee, Social and Community Issues

The Company seeks to conduct its affairs responsibly and the Manager is encouraged to consider environmental, human rights, social and community issues, where appropriate, with regard to investment decisions.

 

The Company is required, by company law, to provide details of environmental (including the impact of the Company's business on the environment), employee, human rights, social and community issues; including information about any policies it has in relation to these matters and the effectiveness of these policies. The Company does not have any employees and as a result does not maintain specific policies in relation to these matters.

 

Livingbridge has an Environmental, Social and Governance ("ESG") policy. As a responsible investor, Livingbridge fully incorporates ESG factors into its investment programme. The ESG policy focuses on environmental, social and corporate governance factors, including risks and opportunities, affecting both the Company and/or specific portfolio companies.

Livingbridge undertakes an in-house risk assessment questionnaire pre-investment to highlight any significant or material ESG issues. Should any such issues be identified, these are then addressed via specific due diligence pre-investment.

 

Upon completion of an investment the completed in-house questionnaires are assessed by an external consultant to corroborate risks identified, advise the company how to address any ESG issues and also to identify any potential upside opportunities (e.g. energy savings). Relevant ESG matters are then included in the portfolio company board meetings as appropriate and also in the standard Livingbridge portfolio progress reports allowing Livingbridge to assess the impact of any interventions or recommendations.

 

Global Greenhouse Gas Emissions

The Company has no greenhouse gas emissions to report from the operations of the Company, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013, including those within its underlying investment portfolio.

 

Gender Diversity

The Board of Directors of the Company comprises four male Directors. The Manager has an equal opportunity policy and currently employs 56 men and 40 women.

 

Appointment of the Manager

 

As announced on 8 November 2018, the Investment Manager for Baronsmead Second Venture Trust, Livingbridge, will change to Gresham House, a specialist alternative asset manager listed on the Stock Exchange, on or around 30 November 2018.

 

The Board expects the new Manager to continue to deliver a performance which meets the objective of achieving long-term investment returns, including tax free dividends. A review of the Company's performance during the financial year, the position of the Company at the year end and the outlook for the coming year is contained within the Chairman's Statement above. The Board assesses the performance of the Manager in meeting the Company's objective against the KPIs.

 

The management agreement

Under the management agreement, the Manager receives a fee of 2.5 per cent per annum of the net assets of the Company. In addition, the Manager is responsible for providing all secretarial, administrative and accounting services to the Company 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 2018 was 2.7 per cent.

 

The management agreement may be terminated at any date by either party giving twelve months' notice of termination and, if terminated, the Manager is only entitled to the management fees paid to it and any interest due on unpaid fees.

 

Performance fees

A performance fee is payable to the Manager when the total return on net proceeds of the ordinary shares exceeds 8 per cent per annum (simple). To the extent that the total return exceeds the threshold over the relevant period then a performance fee of 10 per cent of the excess will be paid to the Manager. The amount of any performance fee which is paid in an accounting period is capped at 5 per cent of net assets.

 

No performance fee was payable for the year to 30 September 2018 (2017: £nil).

 

Management retention

The Board is keen to ensure that the Manager continues to have one of the best investment teams in the VCT and private equity sector. A 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 priority return before profits accrue to the incentive scheme.

 

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 (being investments in which the Baronsmead VCTs hold an insufficient number of prior ranking financial instruments (if any) relative to the number of ordinary shares they hold in order to yield a priority return for the Baronsmead VCTs before any gain accrues to the ordinary shares). 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 coinvest alongside the Baronsmead VCTs for a proportion (currently 0.75 per cent) of the ordinary shares 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, 74 executives have invested a total of £943,000 in 57 companies. At 30 September 2018, 37 of these investments have been realised generating proceeds of £306.9m for the Baronsmead VCTs and £15.5m for the VCT incentive scheme. For Baronsmead Second Venture Trust the average money multiple on these 37 realisations was 1.9 times cost. Had the VCT incentive scheme shares been held instead by the Baronsmead VCTs, the extra return to shareholders would have been the equivalent of 3.7p a share (based on the current number of shares in issue). The Board considers this small cost to retain quality people to be in the best interests of shareholders.

 

Advisory and Directors' Fees

During the year the Manager and an affiliate received £16,000 (2017: £48,000) advisory fees, £356,000 (2017: £448,000) directors' fees for services provided to companies in the investment portfolio and incurred £42,000 (2017: £14,000) abort fees with respect to investments attributable to BSVT.

 

Alternative Investment Fund Manager's Directive ("AIFMD")

The AIFMD regulates the management of alternative investment funds, including VCTs. On 22 July 2014 the Company was registered as a Small UK registered Alternative Investment Fund Manager under the AIFMD.

 

Viability Statement

In accordance with principle 21 of the AIC Code of Corporate Governance ("AIC Code"), the Directors have assessed the prospects of the Company over the three year period to 30 September 2021. This period is used by the Board during the strategic planning process and is considered reasonable for a business of our nature and size. The three year period is considered the most appropriate given the forecasts that we request from the Manager and the estimated time line for finding, assessing and completing investments.

 

In making this statement the Board carried out a robust assessment of the principal risks facing the Company, including those that might threaten its business model, future performance, solvency, or liquidity.

 

The Board also considered the ability of the Company to raise finance and deploy capital. Their assessment took account of the availability and likely effectiveness of the mitigating actions that could be taken to avoid or reduce the impact of the underlying risks, and the large listed portfolio that could be liquidated if necessary.

 

This review has considered the principal risks as outlined above. The Board concentrated its efforts on the major factors which affect the economic, regulatory and political environment. The Board also paid particular attention to the importance of its close working relationship with the Manager, Livingbridge.

 

The Directors have also considered the Company's income and expenditure projections and find these to be realistic and sensible.

 

Based on the Company's processes for monitoring costs, share price discount, the Manager's compliance with the investment objective, policies and business model, asset allocation and the portfolio risk profile, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to 30 September 2021.

 

Returns to Investors

 

Dividend policy

The Board of Baronsmead Second Venture Trust has the objective to maintain a minimum annual dividend level of around 6.5p per ordinary share if possible, but this depends primarily on the level of realisations achieved and cannot be guaranteed.

 

Since launch, the average annual tax free dividend paid to shareholders has been 7.3p per ordinary share.

 

Shareholder choice

The Board wishes to provide shareholders with a number of choices that enable them to utilise their investment in Baronsmead Second Venture Trust in ways that best suit their personal investment and tax planning and in a way that treats all shareholders equally.

 

·      Fund raising | From time to time the Company seeks to raise additional funds by issuing new shares at a premium to the latest published net asset value to account for costs. The Company has announced its intention to raise funds in early 2019.

·      Dividend Reinvestment Plan | The Company offers a Dividend Reinvestment Plan which enables shareholders to purchase additional shares through the market in lieu of cash dividends. Approximately 1,844,000 shares were bought in this way during the year to 30 September 2018.

·      Buy back of shares | From time to time the Company buys its own shares through the market in accordance with its share price discount policy. Subject to certain conditions, the Company seeks to maintain a mid-share price discount of approximately 5 per cent to net asset value where possible. However, shareholders should note this discount may widen during periods of market volatility.

·      Secondary market | The Company's shares are listed on the London Stock Exchange and can be bought using a stockbroker or authorised share dealing service in the same way as shares of any other listed company. Approximately 811,000 shares were bought by investors in the Company's existing shares in the year to 30 September 2018

 

On behalf of the Board

Anthony Townsend

Chairman

22 November 2018

 

 

Extract of the Directors Report

 

Shares and Shareholders

 

Share capital

 

During the year, the Company bought back a total of 5,005,000 ordinary shares to be held in Treasury, representing 2.15 per cent of the issued share capital as at 30 September 2018, with an aggregate nominal value of £500,500. The total amount paid for these shares was £4,410,184.5. The Company's remaining authority to buy back shares from the AGM held in 2018 is 29,791,984. During the year, there were 400,000 ordinary shares sold from Treasury.

 

As at the date of this report the Company's issued share capital was as follows:

 

Share	Total	% of Shares in issue	Nominal Value
In issue	232,791,189	100.0	£23,279,118.90
Held in Treasury	16,298,214	7.0	£1,629,821.40
In circulation	216,492,975	93.0	£21,649,297.50

 

The maximum number of shares held in Treasury during the year was 16,298,214. Shares will not be sold out of Treasury at a discount wider than the discount at which the shares were initially bought back by the Company.

 

Shareholders

Each 10p ordinary share entitles the holder to attend and vote at general meetings of the Company, to participate in the profits of the Company, to receive a copy of the Annual Report & Financial Statements and to a final distribution upon the winding up of the Company.

 

There are no restrictions on voting rights, no securities carry special rights and the Company is not aware of any agreement between holders of securities that result in restrictions on the transfer of securities or on voting rights. There are no agreements to which the Company is party that may affect its control following a takeover bid.

 

In addition to the powers provided to the Directors under UK company law and the Company's Articles of Association, at each AGM the shareholders are asked to authorise certain powers in relation to the issuing and purchasing of the Company's own shares. Details of the powers granted at the AGM held in 2018, all of which remain valid, can be found in the previous Notice of AGM.

 

The Board is not, and has not been throughout the year, aware of any beneficial interests exceeding 3 per cent of the total voting rights.

 

Dividends

The Company paid the following dividends for the year to ended 30 September 2018:

 

Dividends	£'000
First interim dividend of 3.0p per ordinary share paid on 21 September 2018	6,517
Final dividend of 4.5p per ordinary share to be paid on 8 March 2019	9,742*
Total dividends paid for the year	16,259

* Calculated on shares in issue as at 30 September 2018.

 

Subject to shareholder approval at the AGM, a final dividend of 4.5p per share will be paid to shareholders on the register at 8 February 2019.

 

Annual General Meeting

The notice of the AGM of the Company to be held at 11.00am on 28 February 2019 at Saddlers' Hall, 40 Gutter Lane, London EC2V 6BR will be sent to shareholders and will be available on the Company's website.

 

Directors

 

Appointments

The rules concerning the appointment and replacement of Directors are contained in the Company's Articles of

Association and the Companies Act 2006. Further details in relation to the appointed Directors and the governance arrangements of the Board can be found in the 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' indemnity

Directors' and Officers' liability insurance cover is in place in respect of the Directors. The Company's Articles of Association provide, subject to the provisions of UK legislation, an indemnity for Directors in respect of costs which they may incur relating to the defence of any proceedings brought against them arising out of their positions as Directors, in which they are acquitted or judgement is given in their favour by the Court.

 

Save for such indemnity provisions in the Company's Articles of Association and in the Directors' letters of appointment, there are no qualifying third party indemnity provisions in force.

 

Conflicts of Interest

The Directors have declared any conflicts or potential conflicts of interest to the Board of Directors which has the authority to approve such situations. The Company Secretary maintains the Register of Directors' Conflicts of Interests which is reviewed quarterly by the Board, when changes are notified, and the Directors advise the Company Secretary and the Board as soon as they become aware of any conflicts of interest. Directors who have conflicts of interest do not take part in discussions which relate to any of their conflicts.

 

Responsibility for accounts and going concern

The Directors who held office at the date of approval of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's Auditor is unaware and each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company's Auditor is aware of that information.

 

After making enquires, and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational eexistence for the foreseeable future. In arriving at this conclusion the Directors have considered the liquidity of the Company and its ability to meet obligations as they fall due for a period of at least twelve months from the date that these financial statements were approved. As at 30 September 2018, the Company held cash balances and investments in readily realisable securities with a value of £31.8m. Cash flow projections have been reviewed and show that the Company has sufficient funds to meet both its contracted expenditure and its discretionary cash outflows in the form of the share buyback programme and dividend policy. The Company has no external loan finance in place and therefore is not exposed to any gearing or covenants.

 

The Directors have chosen to include their report on global greenhouse emissions in the Strategic Report under the section on environmental, human rights, employee, social and community issues.

 

 

By Order of the Board

Livingbridge VC LLP

Secretary

100 Wood Street London EC2V 7AN

 

22 November 2018

 

Statement of Directors' Responsibilities in respect of the Annual Report and the Financial Statements

 

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

 

Company law requires the directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK Accounting Standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.

 

Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:

 

·      select suitable accounting policies and then apply them consistently;

·      make judgements and estimates that are reasonable and prudent;

·      state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;

·      assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

·      use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations or have no realistic alternative but to do so.

 

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

 

Under applicable law and regulations, the directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

Responsibility Statement of the directors in respect of the annual financial report

 

We confirm that to the best of our knowledge:

 

·      the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company taken as a whole; and

·      the strategic report/directors' report includes a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that they face.

 

We consider the annual report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

 

On behalf of the Board

Anthony Townsend

Chairman

22 November 2018

 

NON-STATUTORY ACCOUNTS

 

The financial information set out below does not constitute the Company's statutory accounts for the periods ended 30 September 2017 and 2018 but is derived from those accounts. Statutory accounts for 2017 have been delivered to the Registrar of Companies, and those for 2018 will be delivered in due course. The Auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditors' report can be found in the Company's full Annual Report and Accounts at www.baronsmeadvcts.co.uk 

 

Income Statement

 

For the year ended 30 September 2018

		Year ended 30 September 2018			Year ended 30 September 2017
	Notes	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains on investments	2.3	-	10,601	10,601	-	13,238	13,238
Income	2.5	5,634	-	5,634	3,119	-	3,119
Investment management fee	2.6	(1,221)	(3,662)	(4,883)	(1,092)	(3,276)	(4,368)
Other expenses	2.6	(649)	-	(649)	(832)	-	(832)
Profit before taxation		3,764	6,939	10,703	1,195	9,962	11,157
Taxation	2.9	(240)	240	-	-	-	-
Profit for the year, being total comprehensive income for the year		3,524	7,179	10,703	1,195	9,962	11,157
Return per ordinary share:
Basic and diluted	2.2	1.63p	3.32p	4.95p	0.63p	5.20p	5.83p

 

 

All items in the above statement derive from continuing operations.

 

There are no recognised gains and losses other than those disclosed in the Income Statement.

 

The revenue column of the Income Statement includes all income and expenses. The capital column accounts for the realised and unrealised profit or loss on investments and the proportion of the management fee charged to capital.

 

The total column of this statement is the Statement of Total Comprehensive Income of the Company prepared in accordance with Financial Reporting Standards ("FRS") 102. The supplementary revenue return and capital return columns are prepared in accordance with the Statement of Recommended Practice issued in November 2014 and updated in January 2017 and February 2018 by the Association of Investment Companies ("AIC SORP").

 

Statement of Changes in Equity

 

For the year ended 30 September 2018

 

		Non-distributable reserves			Distributable Reserves
		Called-up share capital £'000	Share premium   £'000	Revaluation Reserve £'000	Capital reserve £'000	Revenue reserve £'000	Total £'000
At 1 October 2017		20,904	-	38,412	125,783	1,590	186,689
Profit after taxation		-	-	8,793	(1,614)	3,524	10,703
Share premium cancellation costs		-	-	-	3	-	3
Net Proceeds of share issues, share buybacks & sale of shares from treasury		2,375	20,080	-	(4,085)	-	18,370
Dividends paid	2.4	-	-	-	(14,844)	(1,531)	(16,375)
At 30 September 2018		23,279	20,080	47,205	105,243	3,583	199,390

 

For the year ended 30 September 2017

 

	Notes	Non-distributable reserves			Distributable Reserves
		Called-up share capital £'000	Share premium £'000	Revaluation reserve £'000	Capital reserve £'000	Revenue reserve £'000	Total £'000
At 1 October 2016		16,196	81,466	24,357	18,394	495	140,908
Shares issued following the acquisition of Baronsmead VCT5 plc		4,708	38,245	-	-	-	42,953
Cancellation of share premium		-	(119,711)	-	119,711	-	-
Share premium cancellation costs		-	-	-	(29)	-	(29)
Profit/(loss) after taxation		-	-	14,055	(4,093)	1,195	11,157
Net cost of share buybacks		-	-	-	(2,313)	-	(2,313)
Dividends paid	2.4	-	-	-	(5,887)	(100)	(5,987)
At 30 September 2016		20,904	-	38,412	125,783	1,590	186,689

 

Balance Sheet

As at 30 September 2018

	Notes	As at 30 September 2018 £'000	As at 30 September 2017 £'000
Fixed assets
Investments	2.3	199,392	187,364
Current assets
Debtors	2.7	322	260
Cash at bank		1,096	515
		1,418	775
Creditors (amounts falling due within one year)	2.8	(1,420)	(1,450)
Net current liabilities		(2)	(675)
Net assets		199,390	186,689
Capital and reserves
Called-up share capital	3.1	23,279	20,904
Share premium	3.2	20,080	-
Capital reserve	3.2	105,243	125,783
Revaluation reserve	3.2	47,205	38,412
Revenue reserve	3.2	3,583	1,590
Equity shareholders' funds	2.1	199,390	186,689
NAV per share
- Basic and diluted	2.1	92.10p	94.60p

 

The financial statements were approved by the Board of Directors of Baronsmead Second Venture Trust on 22 November 2018 and were signed on its behalf by:

 

Anthony Townsend

Chairman

 

 

Statement of Cash Flows

For the year ended 30 September 2018

 

	Year ended 30 September 2018 £'000	Year ended 30 September 2017 £'000
Cash flows from operating activities
Investment income received	5,568	3,068
Deposit interest received	6	7
Investment management fees paid	(4,803)	(4,249)
Other cash payments	(669)	(525)
Merger costs paid	(61)	(455)
Net cash inflow/(outflow from operating activities	41	(2,154)
Cash flows from investing activities
Purchases of investments	(38,005)	(43,015)
Disposals of investments	36,578	24,606
Net cash outflow from investing activities	(1,427)	(18,409)
Equity dividends paid	(16,375)	(5,987)
Net cash outflow before financing activities	(17,761)	(26,550)
Cash flows from financing activities
Net proceeds/(costs) of share issues, share buybacks & sale of shares from treasury	18,369	(1,048)
Net (costs)/proceeds from merger	(6)	4,008
Share premium cancellation costs	(21)	(5)
Net cash inflow from financing activities	18,342	2,955
Increase/ (decrease) in cash	581	(23,595)
Reconciliation of net cash flow to movement in net cash
Increase/ (decrease) in cash	581	(23,595)
Opening cash position	515	24,110
Closing cash at bank and on deposit	1,096	515
Reconciliation of profit before taxation to net cash inflow /(outflow) from operating activities
Profit before taxation	10,703	11,157
Gains on investments	(10,601)	(13,328)
Decrease in debtors	(62)	(57)
Increase in creditors	1	169
Written off expenses from merger	-	(185)
Net cash inflow/(outflow) from operating activities	41	(2,154)

 

Notes to the Financial Statements

 

We have grouped notes into sections under three key categories:

 

1. Basis of preparation

2. Investments, performance and shareholder returns

3. Other required disclosures

 

The key accounting policies have been incorporated throughout the Notes to the Financial Statements adjacent to the disclosure to which they relate. All accounting policies are included within an outlined box.

 

1.    Basis of Preparation

1.1  Basis of accounting

 

These Financial Statements have been prepared under FRS 102 'The financial Reporting Standard applicable in the UK and Republic of Ireland' and in accordance with the Statement of Recommended Practice ("SORP") for investment trust companies and venture capital trusts issued by the Association of Investment Companies ("AIC") in November 2014 and updated in January 2017 and February 2018 and on the assumptions that the Company maintains VCT status.   The application of the Company's accounting policies requires judgement, estimation and assumptions about the carrying amount of assets and liabilities. These estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.   The Financial Statements have been prepared on a going concern basis, under historical cost convention. The functional currency in which the Company operates is Sterling.

 

 

2.    Investments, Performance and Shareholder Returns

2.1 NAV per share

 

	Number of ordinary shares		Net asset value per share attributable		Net asset value attributable
	30 September 2018 number	30 September 2017 number	30 September 2018 pence	30 September 2017 pence	30 September 2018 £'000	30 September 2017 £'000
Ordinary shares (basic)	216,492,975	197,344,707	92.10	94.60	199,390	186,689

 

 

2.2  Return per share

	Weighted average number of ordinary shares		Return per ordinary share		Net profit after taxation
	30 September 2018 Number	30 September 2017 number	30 September 2018 pence	30 September 2017 pence	30 September 2018 £'000	30 September 2017 £'000
Revenue	216,041,017	191,452,309	1.63	0.63	3,524	1,195
Capital	216,041,017	191,452,309	3.32	5.20	7,179	9,962
Total			4.95	5.83	10,703	11,157

 

2.3  Investments

 

The Company has fully adopted sections 11 and 12 of FRS 102.   Purchases or sales of investments are recognised at the date of transaction.   Investments are measured at fair value. For AIM-traded securities this is either bid price or the last traded price, depending on the convention of the exchange on which the investment is traded.   In respect of 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").   Judgements The key judgements in the fair valuation process are: i)        The Manager's determination of the appropriate application of IPEV guidelines to each unquoted investment; ii)       The Directors' consideration of whether each fair value is appropriate following detailed review and challenge. The judgement applied in the selection of the methodology used for determining the fair value of each unquoted investment can have a significant impact upon the valuation. iii)      Estimates The key estimate in the Financial Statements is the determination of the fair value of the unquoted investments by the Managers for consideration by the Directors. 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 58 and 59. The risk of an over or underestimation of fair values is greater when methodologies are applied using more subjective inputs.   Assumptions The determination of fair value by the Managers involves key assumptions dependent upon the valuation methodology used. The primary methodologies applied are:   i)       Rebased Cost ii)      Earnings Multiple iii)      Offer Less 10%   The Earnings Multiple approach involves more subjective inputs than the Rebased Cost and Offer approaches and therefore presents a greater risk of over or under estimation.   The key assumption for the Rebased Cost valuation method is that the prices used remain a reasonable proxy for fair value typically for a period of up to six months from the date of the relevant transaction. All recent investment prices are compared to movements in relevant benchmarks and the wider market over the period since the date of the relevant transaction.   The key assumptions for the Multiples approach are that the selection of comparable companies (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 qualitative factors.   Gains and losses arising from changes in the fair value of the investments are included in the Income Statement for the year as a capital item. Transaction costs on acquisition are included within the initial recognition and the profit or loss on disposal is calculated net of transaction costs on disposal.

 

All investments are initially recognised and subsequently measured at fair value. Changes in fair value are recognised in the Income Statement. The details of which are set out above.

 

The methods of fair value measurement are classified into a hierarchy based on reliability of the information used to determine the valuation.

 

·      Level 1 - Fair value is measured based on quoted prices in an active market.

·      Level 2 - Fair value is measured based on directly observable current market prices or indirectly being derived from market prices.

·      Level 3 - Fair value is measured using a valuation technique that is not based on data from an observable market.

 

 

	As at 30 September 2018 £'000	As at 30 September 2017 £'000
Level 1
Investments traded on AIM	89,504	86,120
Level 2
Collective investment vehicles	57,896	38,490
Level 3
Unquoted investments	51,992	61,163
Investments traded on AIM	-	1,591
	199,392	187,364

 

 

	Level 1	Level 2	Level 3
	Traded on AIM £'000	Collective investment vehicles £'000	Traded on AIM  £'000	Unquoted £'000	Total £'000
Opening book cost	67,670	28,325	3,429	49,528	148,952
Opening unrealised appreciation/ (depreciation)	18,450	10,165	(1,838)	11,635	38,412
Opening valuation	86,120	38,490	1,591	61,163	187,364
Movements in the year:
Transfers between levels	2,703	-	(3,429)	726	-
Purchases at cost	4,703	29,410	-	3,892	38,005
Sale - proceeds	(6,443)	(14,210)	-	(15,925)	(36,578)
- realised gains / (losses) on sales	(135)	-	-	(3,123)	(3,258)
Unrealised gains realised during the year	1,251	-	-	3,815	5,066
Increase in unrealised appreciation	1,305	4,206	1,838	1,444	8,793
Closing valuation	89,504	57,896	-	51,992	199,392
Closing book cost	69,749	43,525	-	38,913	152,187
Closing unrealised appreciation	19,755	14,371	-	13,079	47,205
Closing valuation	89,504	57,896	-	51,992	199,392
Equity shares	89,504	-	-	22,509	112,013
Loan notes	-	-	-	29,483	29,483
Collective Investment vehicles	-	57,896	-	-	57,896
Closing valuation	89,504	57,986	-	51,992	199,392

 

The gains and losses included in the above table have all been recognised in the Income Statement above.

 

InterQuest Group plc has changed to a level 3 investment due to it being delisted from AIM. TLA Worldwide plc has been changed to a level 1 investment due to a lift on the suspension of trading in place at 30 September 2017.

 

2.4  Dividends

 

In accordance with FRS 102, dividends are recognised as a liability in the period in which they are paid.

 

 

	Year ended 30 September 2018			Year ended 30 September 2017
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Amounts recognised as distributions to equity holders in the period:
For the year ended 30 September 2018
- Interim dividend of 3.0p per ordinary share paid on 21 September 2018	326	6,191	6,517	-	-	-
For the year ended 30 September 2017
-First interim dividend of 4.5p per ordinary share paid on 2 February 2018	1,205	8,653	9,858	-	-	-
-Second interim dividend of 3.0p per ordinary share paid on 31 March 2018	-	-	-	100	5,887	5,987
	1,531	14,844	16,375	100	5,887	5,987

 

2.5  Income

 

Interest income on loan notes and dividends on preference shares are accrued on a daily basis. Provision is made against this income where recovery is doubtful.   Where the terms of unquoted loan notes only require interest or a redemption premium to be paid on redemption, the interest and the redemption premium is recognised as income once redemption is reasonably certain. Until such date interest is accrued daily and included within the valuation of the investment. When a redemption premium is designed to protect the value of the instrument holder's investment rather than reflect a commercial rate of revenue return the redemption premium should be recognised as capital. The treatment of redemption premiums is analysed to consider if they are revenue or capital in nature on a company by company basis. A redemption premium of £332,000 was received in the year ended 30 September 2018.   Income from fixed interest securities and deposit interest is included on an effective interest rate basis.   Dividends on quoted shares are recognised as income when the related investments are marked ex-dividend and where no dividend date is quoted, when the Company's right to receive payment is established.

 

 

	Year ended 30 September 2018			Year ended 30 September 2017
	Quoted securities £'000	Unquoted securities £'000	Total £'000	Quoted securities £'000	Unquoted securities £'000	Total £'000
Income from investments†
Dividend income	1,250	-	1,250	1,479	-	1,479
Interest income	126	3,920	4,046	17	1,618	1,635
Redemption premium	-	332	332	-	-	-
	1,376	4,252	5,628	1,496	1,618	3,114
Other income‡
Deposit interest			6			5
Total income			5,634			3,119

 

† All investments have been designated at fair value through profit or loss on initial recognition, therefore all investment income arises on investments at fair value through profit or loss.

‡ Other income on financial assets not included at fair value through profit or loss.

 

2.6  Investment management fee and other expenses

 

All expenses are recorded on an accruals basis.   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.

 

	Year ended 30 September 2018			Year ended 30 September 2017
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Investment management fee	1,221	3,662	4,883	1,092	3,276	4,368
Performance fee	-	-	-	-	-	-
	1,221	3,662	4,883	1,092	3,276	4,368

 

The management agreement may be terminated by either party giving 12 months notice of termination.

 

The Manager, Livingbridge, 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, Micro Cap and Multi Cap, are also managed by Livingbridge. 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.

 

No performance fee is payable for the year ended 30 September 2018 (2017: £nil).

 

 

Other expenses

	Year ended	Year ended
	30 September	30 September
	2018	2017
	£'000	£'000
Directors' fees	118	100
Secretarial and accounting fees paid to the Manager	166	162
Remuneration of the auditors and their associates:
- audit	34	33
- other services supplied pursuant to legislation (interim review)	5	6
Merger costs	6	302
Other	320	230
	649	832

 

Information on directors' remuneration is given in the Directors' emoluments in the full Annual Rweport and Financial Statements.

 

Charges for other services provided by the Auditors in the year ended 30 September 2018 were in relation to the interim review. The Audit Committee reviews the nature and extent of non-audit services to ensure that independence is maintained. The Directors consider that the Auditors were best placed to provide such services.

2.7  Debtors

 

	As at	As at
	30 September	30 September
	2018	2017
	£'000	£'000
Prepayments and accrued income	322	260
	322	260

 

 

2.8  Creditors (amounts falling due within one year)

 

	As at	As at
	30 September	30 September
	2018	2017
	£'000	£'000
Management, secretarial and accounting fees due to the Manager	1,296	1,215
Merger costs	-	55
Share premium cancellation costs	-	24
Other creditors	124	156
	1,420	1,450

 

2.9  Tax

 

UK corporation tax payable is provided on taxable profits at the current rate.   Provision is made for deferred taxation on the liability method, without discounting, on all timing differences calculated at the current rate of tax relevant to the benefit or liability.

 

The tax charge for the year is lower than the standard rate of corporation tax in the UK for a company. The differences are explained below:

	Year ended			Year ended
	30 September 2018			30 September 2017
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Profit before taxation	3,764	6,939	10,703	1,195	9,962	11,157
Corporation tax at 19.0 per cent (2017: 19.5 per cent)*	715	1,319	2,034	233	1,943	2,176
Effect of:
Non-taxable gains	-	(2,014)	(2,014)	-	(2,581)	(2,581)
Non-taxable dividend income	(238)	-	(238)	(288)	-	(288)
Non-deductible expenses	1	-	1	59	-	59
Losses carried forward	(238)	455	217	(4)	638	634
Tax charge/(credit) for the period	240	(240)	-	-	-	-

 

* The corporation tax rate applied is based on the average tax rates for the financial year ended 30 September 2017. The actual rates were 20 per cent until 31 March 2017 and 19 per cent from 1 April 2017.

 

At 30 September 2018 the Company had surplus management expenses of £10,670,581 (2017: £9,609,937) which have not been recognised as a deferred tax asset. This is because the Company is not expected to generate taxable income in a future year in excess of the deductible expenses of that future year and, accordingly, the Company is unlikely to be able to reduce future tax liabilities through the use of existing surplus expenses. Due to the Company's status as a VCT, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.

 

3.    Other Required Disclosures

 

3.1  Called-up share capital

Allotted, called-up and fully paid:

 

Ordinary shares	£'000
209,037,921 ordinary shares of 10p each listed at 30 September 2017	20,904
23,753,268 ordinary shares of 10p each issued during the year	2,375
232,791,189 ordinary shares of 10p each listed at 30 September 2018	23,279
11,693,214 ordinary shares of 10p each held in treasury at 30 September 2017	(1,169)
5,005,000 ordinary shares of 10p each repurchased during the year and held in treasury	(501)
(400,000) ordinary shares of 10p each sold from treasury during the year	40
16,298,214 ordinary shares of 10p each held in treasury at 30 September 2018	(1,630)
216,492,975 ordinary shares of 10p each in circulation* at 30 September 2018	21,649

 

* Carrying one vote each.

 

The 23,753,268 ordinary shares were issued at an average price of 97.5p.

 

During the year, the Company bought back into treasury 5,005,000 ordinary shares, representing 2.4 per cent of the ordinary shares in issue at the beginning of the financial year. During the year, the Company also sold 400,000 shares from treasury.

 

Treasury shares

When the Company re-acquires its own shares, they are currently held as treasury shares and not cancelled.

 

Shareholders have authorised the board to re-issue treasury shares at a discount to the prevailing NAV subject to the following conditions:

·     It is in the best interests of the Company;

·     Demand for the Company's shares exceeds the shares available in the market;

·     A full prospectus must be produced if required; and

·     HMRC will not consider these 'new shares' for the purposes of the purchasers' entitlement to initial income tax relief.

 

3.2  Reserves

 

Gains and losses on realisation of investments of a capital nature are dealt with in the capital reserve. Purchases of the Company's own shares to be either held in treasury or cancelled are also funded from this reserve. 75 per cent of management fees are allocated to the capital reserve in accordance with the board's expected split between long term income and capital returns.

 

	Distributable reserves			Non-distributable reserves
	Capital reserve £'000	Revenue reserve £'000	Total £'000	Share premium £'000	Revaluation reserve* £'000	Total £'000
At 1 October 2017	125,783	1,590	127,373	-	38,412	38,412
Gross proceeds of share issues	-	-	-	20,775	-	20,775
Share premium cancellation costs	3	-	3	-	-	-
Purchase of shares for treasury	(4,410)	-	(4,410)	-	-	-
Sale of shares from treasury	347	-	347	-	-	-
Expenses of share issues and buybacks	(22)	-	(22)	(695)	-	(695)
Reallocation of prior year unrealised gains	5,066	-	5,066	-	(5,066)	(5,066)
Realised loss on disposal of investments	(3,258)	-	(3,258)	-	-	-
Net increase in value of investments#	-	-	-	-	13,859	13,859
Management fee charged to capital#	(3,662)	-	(3,662)	-	-	-
Taxation relief from capital expenses#	240	-	240	-	-	-
Profit after taxation#	-	3,524	3,524	-	-	-
Dividends paid in the period	(14,844)	(1,531)	(16,375)	-	-	-
At 30 September 2018	105,243	3,583	108,826	20,080	47,205	67,285

 

* Changes in fair value of investments are dealt with in this reserve.

^# The total of these items is £10,703,000 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.

 

Share premium is recognised net of issue costs.

 

The Company does not have any externally imposed capital requirements.

 

3.3 Financial instruments risks

 

The Company's financial instruments comprise equity and fixed interest investments, cash balances and liquid resources including debtors and creditors. The Company holds financial assets in accordance with its investment policy to invest in a diverse portfolio of UK growth businesses.

 

The Company's investing activities expose it to a range of financial risks. These key risks and the associated risk management policies to mitigate these risks are described below.

 

Market risk

Market risk includes price risk on investments and interest rate risk on investments and other financial assets and liabilities.

 

Price Risk

The investment portfolio is managed in accordance with the policies and procedures described in the Strategic Report.

 

Investments in unquoted stocks and AIM-traded companies involve a higher degree of risk than investments in the main market. The Company aims to reduce this risk by diversifying the portfolio across business sectors and asset classes.

 

Management performs continuing analysis on the fair value of investments and the Company's overall market positions are monitored by the board on a quarterly basis. Management are comfortable that a 5% movement in share price is a reasonable estimate of the upside and downside alternatives.

 

 

	As at 30 September 2018			As at 30 September 2017
	% of total investment	5% increase in share price effect on net assets and profit £'000	5% decrease in share price effect on net assets and profit £'000	% of total investment	5% increase in share price effect on net assets and profit £'000	5% decrease in share price effect on net assets and profit £'000
AIM & CIV	74	7,370	(7,370)	67	6,310	(6,310)
Unquoted	26	2,600	(2,600)	33	3,058	(3,058)

 

Valuation methodology includes the application of earnings multiples derived from either listed companies with similar characteristics or recent comparable transactions. Therefore, the value of the unquoted element of the portfolio may also indirectly be affected by price movements on the listed exchanges.

Price Sensitivity

The fair valuation of unquoted investments in influenced by the estimates, assumptions and judgements made in the fair valuation process (see note 2.3 above). A sensitivity analysis is provided below which recognises that the valuation methodologies employed involve different levels or subjectivity in their inputs. The sensitivity analysis below applied a wider range of input variable sensitivity to the earnings multiple method due to the increased subjectivity involved in the use of this method compared to the rebased cost method. No variable sensitivity has been applied to the offer method as the input for this calculation was the agreed sale price of the investment.

Valuation basis	Fair Value £'000	Sensitivity %	£'000	Impact % of Net Assets
Rebased Cost	6,865	+/-10	+/-687	+/-0.3
Earnings Multiple	41,119	+/-20	+/-8,224	+/-4.1
Offer less 10%	4,008	-	-	-

 

Interest rate risk

The Company has the following investments in fixed rate financial assets:

 

	As at 30 September 2018			As at 30 September 2017
	Total investment £'000	Weighted average interest rate %	Weighted average time for which rate is fixed years	Total investment £'000	Weighted average interest rate %	Weighted average time for which rate is fixed days
Fixed rate loan note securities	29,483	9.32	2.11	40,082	9.13	2.16
Fixed rate sterling liquidity funds	30,690	-	-	15,490	-	-
Cash at bank and on deposit	1,096	-	-	515	-	-
	61,269			56,087

 

Movements in interest rates would not significantly affect net assets attributable to the Company's Shareholders and total profits.

 

Credit risk

Credit risk refers to the risk that counterparty will default on its obligation resulting to a financial loss to the Company. The Investment Manager monitors credit risk on an ongoing basis.

 

At the reporting date, the Company's financial assets exposed to credit risk amounted to the following:

 

	As at	As at
	30 September	31 September
	2018	2017
	£'000	£'000
Cash at bank and on deposit	1,096	515
Interest, dividends and other receivables	322	260
	1,418	775

 

Credit risk on unquoted loan stock held within unlisted investments is considered to be part of market risk as disclosed earlier in the note.

 

Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions is considered to be small due to the short settlement period involved and the high credit quality of the brokers used. The Board monitors the quality of service provided by the brokers used to further mitigate this risk.

 

All the assets of the Company which are traded on a recognised exchange are held by JP Morgan Chase ("JPM"), the Company's custodian. The board monitors the Company's risk by reviewing the custodian's internal controls reports as described in the Corporate Governance section of the full Annual report and Financial Statements.

 

The cash held by the Company is held by JPM. The board monitors the Company's risk by reviewing regularly the internal control reports of these banks. Should the credit quality or the financial position of either bank deteriorate significantly the Investment Manager will seek to move the cash holdings to another bank.

 

There were no significant concentrations of credit risk to counterparties at 30 September 2018 or 2017. No individual investment in a portfolio company exceeded 4.9 per cent of the net assets attributable to the Company's shareholders at 30 September 2018 (2017: 3.8 per cent).

 

Liquidity risk

The Company's financial instruments include investments in unquoted companies which are not traded in an organised public market, as well as AIM-traded equity investments, all of which generally may be illiquid. As a result, the Company may not be able to liquidate quickly some of its investments in these instruments at an amount close to their fair value in order to meet its liquidity requirements, or to respond to specific events such as deterioration in the creditworthiness of any particular issuer.

 

The Company's liquidity risk is managed on an ongoing basis by the Investment Manager. The Company's overall liquidity risks are monitored on a quarterly basis by the Board.

 

The Company maintains sufficient investments in cash and readily realisable securities to pay accounts payable and accrued expenses. At 30 September 2018 these investments were valued at £31,786,000 (2017: £16,005,000).

 

3.4 Investments in Associates

 

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	Sensitivity %	% of Equity	Profit (£m)	Net Assets (£m)	Results for year ended
Happy Days Consultancy	UK	A Ordinary	31.46	(2.2)	(6.5)	31 December 2017
Armstrong Craven	UK	A, B & C Ordinary	24.02	0.0	0.2	31 December 2017

3.5 Related parties

 

Related party transactions include Management, Secretarial, Accounting and Performance fees payable to the Manager, Livingbridge VC LLP, as disclosed in notes 2.6 and 2.8, and fees paid to the Directors along with their shareholdings as disclosed in note 2.6. In addition, the Manager operates a VCT incentive scheme, detailed in the Management retention section of the Strategic Report above, whereby employees of the Manager are entitled to participate in all eligible unquoted investments alongside the Company.

 

During the year, the Manager and an affiliate received £16,000 (2017: £48,000) advisory fees, £356,000 (2017: £448,000) directors' fees for services provided to companies in the investment portfolio and incurred £42,000 (2017: £14,000) abort fees with respect to investments attributable to BSVT.

 

A related party relationship exists between Baronsmead Second Venture Trust and Happy Days Consultancy, owing to the significant influence held over the operations of the company accrued for. During the year the company received £547,000 from Happy Days Consultancy relating to interest due on loan balances. As at 30 September 2018, the loan balance stood at £6,214,000, including £2,085,000 of capitalised interest.

 

A related party relationship exists between Baronsmead Second Venture Trust and Armstrong Craven Limited, owing to the significant influence held over the operations of the company. During the year the company received £24,000 and accrued a further £217,000 from Armstrong Craven relating to interest due on loan balances. As at 30 September 2018, the loan balance stood at £1,956,205, including £327,000 of capitalised interest.

 

3.6 Segmental reporting

 

The Company has one reportable segment being investing in primarily a portfolio of UK growth businesses, whether unquoted or traded on AIM.

 

 

 

3.7 Post balance sheet events

 

Change in Manager

On 8 November 2018, Livingbridge announced the sale of its fund and investment management business, including its Baronsmead VCT business, to a subsidiary of Gresham House, a specialist alternative asset manager listed on the London Stock Exchange. The core management, investment and operational teams involved with the Company will all be transferred to Gresham House in connection with this transaction.

 

The Company has consented to the novation of the existing investment management and co-investment agreements to Gresham House, which is expected to become effective around 30 November 2018. No changes are being made to the terms of the investment management and co-investment agreements.

 

Realisation

Following the balance sheet the Company realised its investment in Symphony Ventures returning proceeds totalling £4.3m and making a return of 2.4x cost.

 

National Storage Mechanism

A copy of the Annual Report and Financial Statements will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at: http://www.morningstar.co.uk/uk/NSM

 

END

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.