Annual Financial Report for the y/e 30/09/2019

Extract of the Strategic Report

 

Applying the Business Model

This section of the Strategic Report sets out the practical steps that the Board has taken in order to apply the business model, achieve the investment objective, and adhere to the investment policy. The investment policy, which is set out in the full annual report and accounts, 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 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 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 preference 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 ("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 and 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.

 

As a signatory to the UN-supported Principles for Responsible Investment, Gresham House is committed to operating responsibly and sustainably, and believes its strategy of taking the long view in delivering sustainable investment solutions will continue to be a growing factor in the strength of its market position.

 

Gresham House has an Environmental, Social and Governance ("ESG") policy.

 

The six principles of the Gresham House policy are:

1)   Encourage a work environment which values and respects all employees.

2)   Adopt a responsible and ethical approach to governance.

3)   Incorporate ESG considerations into all investment analysis and decision-making processes where relevant.

4)   Ensure Group-wide awareness of ESG issues and compliance with the Group ESG policy.

5)   Promote awareness and adoption of ESG considerations.

6)   Inform our investors of this ESG policy and provide them with information on our approach to ESG issues.

 

Within the Strategic Equity division of Gresham House, our investment teams judge sound corporate governance to be a significant factor in a company's ability to create and sustain long-term shareholder value. ESG considerations are integrated into our investment processes. Gresham House supports the UK Stewardship Code and complies with its guidelines regarding proxy voting and engagement. Gresham

House is currently undertaking a review looking at how it can further integrate ESG considerations across all aspects of the investment lifecycle. As part of that, Gresham House is implementing tailored versions of its overarching policy for each asset class. Within those policies it is looking at how its approach to Sustainable Investing will contribute towards the UN Sustainable Development Goals alongside improvements to the reporting and engagement with investee companies on the subjects of governance, social impact, the environment and climate change where appropriate.

 

Global Greenhouse Gas Emissions

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

 

Gender Diversity

The Board of Directors of the Company comprises two female and two male Directors.

 

Appointment of the Manager

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

 

The management agreement

Under the management agreement, the Manager receives a fee of 2.0 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 Ltd to provide these services to the Company on its behalf. The Company is responsible for paying the fee charged by Link Alternative Fund Administrators Ltd 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 2019 was 2.2 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.

 

Performance fees

A performance fee will be payable to the Manager once the total return on shareholders' funds exceeds an annual threshold of the higher of 4 per cent or base rate plus 2 per cent calculated on a compound basis. To the extent that the total return exceeds the threshold over the relevant period then a performance fee of 10 per cent of the excess will be paid to the Manager. The amount of any performance fee which is paid in an accounting period shall be capped at 5 per cent of shareholders' funds for that period.

 

No performance fee is payable for the year to 30 September 2019 (2018: £548,000).

 

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 VCT 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. "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 is less prior ranking instruments yielding a priority return for the Baronsmead VCTs before any gain 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.

 

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, 82 executives have invested a total of £1,033,000 in 67 companies. At 30 September 2019, 42 of these investments have been realised generating proceeds of £338,000,000 for the Baronsmead VCTs and £18,000,000 for the VCT incentive scheme. For Baronsmead Venture Trust the average money multiple on these 42 realisations was 1.8 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 4.4p a share over 15 years (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 October and November 2018, Livingbridge VC LLP received £Nil (2018: £14,000) advisory fees, £55,000 (2018: £292,000) directors' fees for services provided to companies in the investment portfolio and incurred abort costs of £42,000 (2018: £34,000) with respect to investments attributable to Baronsmead Venture Trust plc.

 

For the remainder of the year, Gresham House Asset Management Ltd received £107,000 (2018: £Nil) advisory fees, £206,000 (2018: £Nil) directors' fees for services provided to companies in the investment portfolio and incurred abort costs of £23,000 (2018: £Nil) with respect to investments attributable to Baronsmead Venture Trust plc.

 

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 AIFM under the AIFMD.

 

Viability Statement

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 2022. 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 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 Directors have considered the ability of the Company to comply on an ongoing basis with the conditions for maintaining VCT approval status.

 

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, Gresham House.

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 2022.

Returns to Investors

Dividend policy

 

The Board will decide the annual dividends each year and the level of the dividends will depend on in-vestment 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 and actual realisations. However, the Board confirms the following two guidelines that shape its dividend policy:

·      The Board will, wherever possible, seek to pay two dividends to Shareholders in each calendar year, typically an interim in September and a final dividend following the AGM in February/March; and

 

·      The Board will use, as a guide, when setting the dividends for a financial year, a sum representing 7 per cent of the opening NAV of that financial year.

 

 

Shareholder choice

The Board wishes to provide shareholders with a number of choices that enable them to utilise their investment in Baronsmead Venture Trust in ways that best suit their personal investment and tax planning 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 £20 million.

·      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 1,934,000 shares were bought in this way during the year 30 September 2019.

·      Buy back of shares | From time to time the company buys it own shares through the market in accordance with its share price discount policy. Subject to the likely impact on shareholders as a whole the funding requirements of the Company and market conditions at the time, 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 the 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 792,000 shares were brought by investors in the Company's existing shares in the year to 30 September 2019.

 

On behalf of the Board

Peter Lawrence

Chairman

22 November 2019

 

Extract of the Directors' Report

 

Shares and shareholders

 

Share capital

During the year the Company bought back a total of 5,534,163 ordinary shares to be held in Treasury, representing 2.509 per cent of the issued share capital as at 30 September 2019, with an aggregate nominal value of £553,416.3. The total amount paid for these shares was £4,293,857. The Company's remaining authority to buy back shares from the AGM held in 2019 is £23,223,613. During the year the Company sold 725,000 ordinary shares from Treasury.

 

Since the year end, on the 10 October 2019, the Company bought back 188,915 Ordinary Shares at a price of 72.25 pence per share to be held in Treasury. On 21 November 2019 the Company allotted 13,992,088 new ordinary shares pursuant to the offer for subscription set out in the prospectus published on 4 October 2019. These new shares were allotted at a price of 76.80 pence per share, representing 5.9 per cent of the issued share capital following the allotment with an aggregate nominal value of 1,399,208.8, raising a further 10,745,923 of new funds (before expenses).

 

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

 

Share	Total	% of Shares in issue	Nominal Value
In issue	234,525,763	100.0	£23,452,576.3
Held in treasury	19,436,897	8.29	£1,943,689.7
In circulation	215,088,866	91.71	£21,508,886.6

 

The maximum number of shares held in Treasury during the year was 19,297,982. 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 participate in 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 2019, all of which remain valid, can be found in the last 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.

 

Tax free dividends

The Company paid or declared the following dividends for the year ended 30 September 2019:

 

Dividends	£'000
Interim dividend of 3.0p per ordinary share paid on 27 September 2019	6,037
Final dividend of 3.5p per ordinary share to be paid on 6 March 2020	7,045*
Total dividends paid for the year	13,082

*Calculated on shares in issue as at 30 September 2019

 

Subject to shareholder approval at the AGM, a final dividend of 3.5p per share will be paid on 6 March 2020 to shareholders on the register at 7 February 2020.

 

Annual General Meeting

The notice of the AGM of the Company to be held at 11am on 26 February 2020 at Saddlers' Hall, 40 Gutter Lane, London EC2V 6BR has been sent to shareholders and is 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 full annual report and accounts.

 

Directors are entitled to a payment in lieu of three month 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. Directors advise the Company Secretary and the Board as soon as they become aware of any conflicts of interest and do not take part in discussions which relate to any of their conflicts.

 

Responsibility for 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 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.

 

Financial Instruments

 

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.

 

Going Concern

 

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. In arriving at this conclusion the Directors have also 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 were approved. As at 30 September 2019, the Company held cash balances and investments in readily realisable securities with a value of £27,930,000. Cash flow projections have been reviewed and show that the Company has sufficient funds to meet both its contracted expenditure and its discretionary cash outflows in the form of the share buyback programme and dividend policy. The Company has no external loan finance in place and therefore is not exposed to any gearing or covenants.

 

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

 

Listing Rule Disclosure

 

The Company confirms that there are no items which require disclosure under Listing Rule 9.4R in respect of the year ended 30 September 2019.

 

By Order of the Board

 

Gresham House Asset Management Ltd

Secretary

5 New Street Square London EC4A 3TW

 

22 November 2019

 

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 reason able and prudent;

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

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

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

 

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

 

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

 

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

 

Responsibility statement of the Directors in respect of the annual financial report

We confirm that to the best of our knowledge:

 

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

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

 

We consider the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the company's position and performance, business model and strategy.

 

On behalf of the Board

Peter Lawrence

Chairman

22 November 2019

 

NON-STATUTORY ACCOUNTS

 

The financial information set out below does not constitute the Company's statutory accounts for the years ended 30 September 2018 and 2019 but is derived from those accounts. Statutory accounts for 2018 have been delivered to the Registrar of Companies, and those for 2019 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 2019

 

		Year ended 30 September 2019			Year ended 30 September 2018
	Notes	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
(Losses)/gains on investments	2.3	-	(16,181)	(16,181)	-	10,925	10,925
Income	2.5	2,665	-	2,665	5,104	-	5,104
Investment management fee and performance fee	2.6	(735)	(2,204)	(2,939)	(833)	(3,048)	(3,881)
Other expenses	2.6	(597)	-	(597)	(590)	-	(590)
Profit/ (loss) before taxation		1,333	(18,385)	(17,052)	3,681	7,877	11,558
Taxation	2.9	(61)	61	-	(330)	330	-
Profit/ (loss) for the year, being total comprehensive income for the year		1,272	(18,324)	(17,052)	3,351	8,207	11,558
Return per ordinary share:
Basic and Diluted	2.2	0.64	(9.22p)	(8.58p)	1.75p	4.28p	6.03p

 

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 by the Association of Investment Companies ("AIC SORP").

 

Statement of Changes in Equity

For the year ended 30 September 2019

 

 

	Notes	Non-distributable reserves			Distributable Reserves		Total £'000
		Called-up share capital £'000	Share premium £'000	Revaluation Reserve £'000	Capital reserve £'000	Revenue reserve £'000
At 1 October 2018		20,628	18,154	50,283	83,004	3,406	175,475
(Loss)/profit after taxation		-	-	(23,374)	5,050	1,272	(17,052)
Net proceeds of share issues & share buybacks		1,425	10,243	-	3,783	-	7,885
Dividends paid	2.4	-	-	-	(11,870)	(3,369)	(15,239)
At 30 September 2019		22,053	28,397	26,909	72,401	1,309	151,069

There were no share Premium cancellation costs in the 2019 year

 

For the year ended 30 September 2018

 

	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 2017		18,412	-	41,352	97,963	1,275	159,002
Share Premium cancellation costs		-	-	-	2	-	2
Profit/ (loss) after taxation		-	-	8,931	(724)	3,351	11,558
Net proceeds of share issues and share buybacks		2,216	18,154	-	(2,892)	-	17,478
Dividends paid	2.4	-	-	-	(11,345)	(1,220)	(12,565)
At 30 September 2018		20,628	18,154	50,283	83,004	3,406	175,475

 

Balance Sheet

 

As at 30 September 2019

	Notes	As at 30 September 2019 £'000	As at 30 September 2018 £'000
Fixed assets
Investments	2.3	142,715	175,746
Current assets
Debtors	2.7	176	231
Cash at bank and on deposit		9,792	1,090
		9,968	1,321
Creditors (amounts falling due within one year)	2.8	(1,614)	(1,592)
Net current assets/ (liabilities)		8,354	(271)
Net assets		151,069	175,475
Capital and reserves
Called-up share capital	3.1	22,053	20,628
Share premium	3.2	28,397	18,154
Capital reserve	3.2	72,401	83,004
Revaluation reserve	3.2	26,909	50,283
Revenue reserve	3.2	1,309	3,406
Equity shareholders' funds		151,069	175,475
Net asset value per share
- Basic and diluted	2.1	75.05p	91.47p

 

The financial statements were approved by the Board of Directors of Baronsmead Venture Trust plc on 22 November 2019 and were signed on its behalf by:

Peter Lawrence

Chairman

Statement of Cash Flows

For the year ended 30 September 2019

	Year ended 30 September 2019 £'000	Year ended 30 September 2018 £'000
Cash flows from operating activities
Investment income received	2,756	5,041
Deposit interest received	-	8
Investment management fees paid	(3,612)	(3,956)
Other cash payments	(616)	(602)
Merger costs paid	-	(8)
Net cash (outflow)/ inflow from operating activities	(1,472)	483
Cash flows from investing activities
Purchases of investments	(12,911)	(31,664)
Disposals of investments	30,477	26,973
Net cash inflow/ (outflow) from investing activities	17,566	(4,691)
Equity dividends paid	(15,239)	(12,565)
Net cash inflow/ (outflow) before financing activities	855	(16,773)
Cash flows from financing activities
Net proceeds of share issues, share buybacks & sale of shares from treasury	7,847	17,479
Share premium cancellation costs	-	(25)
Net cash inflow from financing activities	7,847	17,454
Increase in cash	8,702	681
Reconciliation of net cash flow to movement in net cash
Increase in cash	8,702	681
Opening cash position	1,090	409
Closing cash at bank and on deposit	9,792	1,090
Reconciliation of (loss)/profit before taxation to net cash (outflow)/inflow from operating activities
(Loss)/ profit before taxation	(17,052)	11,558
Losses/ (gains) on investments	16,181	(10,925)
Decrease/ (increase) in debtors	91	(56)
(Decrease) in creditors	(692)	(94)
Net cash (outflow)/ inflow from operating activities	(1,472)	483

 

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 assumption that the Company maintains VCT status with HMRC. The application of the Company's accounting policies requires judgement, estimation and assumption about the carrying amount of assets and liabilities. These estimates and associated assumption 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 it is reasonable to expect 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 functional currency in which the Company operates is Sterling.

 

 

2.    Investments, performance and shareholder returns

2.1 Net asset value per share

	Number of ordinary shares		Net asset value per share attributable		Net asset value attributable
	30 September  2019 number	30 September 2018 number	30 September 2019 pence	30 September 2018 pence	30 September 2019 £'000	30 September 2018 £'000
Ordinary shares (basic)	201,285,693	191,846,404	75.05	91.47	151,069	175,475

 

 

2.2  Return per share

	Weighted average number of ordinary shares		Return per ordinary share		Net profit/ (loss) after taxation
	30 September 2019 number	30 September 2018 number	30 September 2019 pence	30 September 2018 Pence	30 September 2019 £'000	30 September 2018 £'000
Revenue	198,747,709	191,698,288	0.64	1.75	1,272	3,351
Capital	198,747,709	191,698,288	(9.22)	4.28	(18,324)	8,207
Total			(8.58)	6.03	(17,052)	11,558

 

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 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").   Judgements The key judgements in the fair valuation process are: i)          The Manager's determination of the appropriate application of the IPEV 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.   Estimates 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 3.1 below. 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 for unquoted investments involves key assumptions dependent upon the valuation methodology used. The primary methodologies applied are:   i)     Rebased Cost ii)    Earnings Multiple iii)   Offer Less 10 per cent   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. Rebased cost approach involves holding the investment at the price set in the latest available funding round.   The key assumption 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.   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.

 

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.

 

·      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 2019 £'000	As at 30 September 2018 £'000
Level 1
Investments traded on AIM	48,371	72,814
Level 2
Investment traded on AIM	5,870	-
Collective investment vehicles	46,793	59,549
Level 3
Unquoted investments	41,681	43,383
	142,715	175,746

 

 

	Level 1	Level 2		Level 3
	Traded on AIM £'000	Traded on AIM £'000	Collective investment vehicles £'000		Unquoted £'000	Total £'000
Opening book cost	49,916	-	43,971		31,576	125,463
Opening unrealised appreciation	22,898	-	15,578		11,807	50,283
Opening valuation	72,814	-	59,549		43,383	175,746
Transfer between levels	(5,041)	5,041	-		-	-
Purchases at cost	2,968	1,479	-		9,180	13,627
Sale - proceeds	(5,291)	-	(10,880)		(14,306)	(30,477)
Sale - realised gains on sales	1,371	-	-		1,016	2,387
Unrealised gains realised during the year	1,101	-	-		3,705	4,806
Decrease in unrealised appreciation	(19,551)	(650)	(1,876)		(1,297)	(23,374)
Closing valuation	48,371	5,870	46,793		41,681	142,715
Closing book cost	45,024	6,520	33,091		31,171	115,806
Closing unrealised appreciation/(depreciation)	3,347	(650)	13,702		10,510	26,909
Closing valuation	48,371	5,870	46,793		41,681	142,715
Equity shares	48,371	5,870	-		20,149	74,390
Preference Shares	-	-	-		841	841
Loan notes	-	-	-		20,691	20,691
Collective investment vehicles	-	-	46,793		-	46,793
Closing valuation	48,371	5,870	46,793		41,681	142,715

 

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

 

2.4  Dividends

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

 

	Year ended 30 September 2019			Year ended 30 September 2018
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Amounts recognised in the year:
For the year ended 30 September 2019
-Interim dividend of 3.0p per ordinary share paid on 27 September 2019	302	5,735	6,037	-	-	-
For the year ended 30 September 2018
-Interim dividend of 3.0p per ordinary share paid on 21 September 2018	-	-	-	288	5,481	5,769
-Final dividend of 4.5p per ordinary share paid on 8 March 2019	3,067	6,135	9,202	-	-	-
For the year ended 30 September 2017
-Final dividend of 3.5p per ordinary share paid on 2 March 2018	-	-	-	932	5,864	6,796
	3,369	11,870	15,239	1,220	11,345	12,565

2.5  Income

 

Interest income on loan notes and dividends on preference shares are accrued on a daily basis. Provision is made against this income where recovery is doubtful.   Where the terms of unquoted loan notes only require interest or a redemption premium to be paid on redemption, the interest and redemption premium is recognised as income once redemption is reasonably certain. Until such date interest is accrued daily and included within the valuation of the investment. 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 £61,000 was received for the year ended 30 September 2019.   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 2019			Year ended 30 September 2018
	Quoted securities £'000	Unquoted securities £'000	Total £'000	Quoted securities £'000	Unquoted securities £'000	Total £'000
Income from investments†
Dividend income	942	69	1,011	1,042	-	1,042
Interest Income	176	1,418	1,594	116	3,606	3,722
Redemption premium	-	60	60	-	332	332
	1,118	1,547	2,665	1,158	3,938	5,096
Other income‡
Deposit interest			-			8
Total income			2665			5,104

 

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

 

‡ Other income on financial assets not including 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 capital.

 

	Year ended 30th September 2019			Year ended 30th September 2018
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Investment management fee	735	2,204	2,939	833	2,500	3,333
Performance fee	-	-	-	-	548	548
	735	2,204	2,939	833	3,048	3,881

 

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

 

The Manager, Gresham House Asset Management Ltd, receives a fee of 2 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 Gresham House. Arrangements are in place to avoid the double charging of fees.

 

The Manager is entitled to a performance fee if at the end of any calculation period, the total return on shareholders' funds exceeds the threshold of the higher of 4 per cent or base rate plus 2 per cent on shareholders' funds (calculated on a compound 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 shareholders' funds at the end of the period.

 

Amounts payable to the Manager at the year end are disclosed in note 2.8.

 

Other expenses

	Year ended	Year ended
	30 September	30 September
	2019	2018
	£'000	£'000
Directors' fees	109	105
Secretarial and accounting fees paid to the Manager	152	147
Remuneration of the auditors and their associates:
- audit	28	27
- other services supplied pursuant to legislation (interim review)	7	5
Merger costs*	-	8
Other	301	298
	597	590

* In the year ended 30 September 2018, further merger costs were subsequently paid.

 

Information on directors' remuneration is given in the directors' emoluments in the full annual report and accounts.

 

Charges for other services provided by the auditors in the year ended 30 September 2019 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
	2019	2018
	£'000	£'000
Prepayments and accrued income	140	231
Amounts due from brokers	36	-
	176	231

 

2.8  Creditors (amounts falling due within one year)

	As at	As at
	30 September	30 September
	2019	2018
	£'000	£'000
Management, secretarial and accounting fees due to the Manager	797	1,469
Amount due to brokers	716	-
Other creditors	101	123
	1,614	1.592

 

2.9  Tax

 

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.

 

A reconciliation of the tax (credit)/charge to the profit/(loss) before taxation is shown below:

	Year ended			Year ended
	30 September 2019			30 September 2018
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Profit/(loss) before taxation	1,333	(18,385)	(17,052)	3,681	7,877	11,558
Corporation tax at 19.0 per cent (2018: 19.0 per cent)	253	(3.493)	(3,240)	699	1,497	2,196
Effect of:
Non-taxable gains	-	3,074	3,074	-	(2,076)	(2,076)
Non-taxable dividend income	(192)	-	(192)	(198)	-	(198)
Non-deductible expenses	-	-	-	2	-	2
Losses carried forward	-	358	358	(173)	249	76
Tax charge/ (credit) for the year	61	(61)	-	330	(330)	-

 

At 30 September 2019 the Company had surplus management expenses of £12,271,403 (2018: £10,411,258) which have not been recognised as a deferred tax asset. This is because the Company is not expected to generate taxable income in a future period in excess of the deductible expenses of that future period and, accordingly, the Company is unlikely to be able to reduce future tax liabilities through the use of existing surplus expenses. Due to the Company's status as a VCT, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.

 

3.    Other Required Disclosures

 

3.1  Called-up share capital

Allotted, called-up and fully paid:

 

Ordinary shares	£'000
206,285,223 ordinary shares of 10p each listed at 30 September 2018	20,628
14,248,452 ordinary shares of 10p each issued during the year	1,425
220,533,675 ordinary shares of 10p each listed at 30 September 2019	22,053
14,438,819 ordinary shares of 10p each held in treasury at 30 September 2018	(1,443)
5,534,163 ordinary shares of 10p each repurchased during the year and held in treasury	(553)
725,000 ordinary shares of 10p each sold from treasury during the year	72
19,247,982 ordinary shares of 10p each held in treasury at 30 September 2019	(1,924)
201,285,693 ordinary shares of 10p each in circulation* at 30 September 2019	20,129

* Carrying one vote each.

 

The 14,248,452 ordinary shares were issued at an average price of 84.2p.

During the year the Company bought back 5,534,163 ordinary shares and sold from treasury 725,000 shares, representing 2.18 per cent of the ordinary shares in issue at the beginning of the financial year.

 

Treasury shares

When the Company reacquires its own shares, they are held as treasury shares and not cancelled.

Shareholders have authorised the Board to sell treasury shares at a discount to the prevailing NAV subject to the following conditions:

 

-     It is in the best interests of the Company;

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

-     A full prospectus must be produced if required; and

-     HMRC will not consider these 'new shares' for the purpose 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 2018	83,004	3,406	86,410	18,154	50,283	68,437
Gross proceeds of share issues	-	-	-	10,573	-	10,573
Purchase of shares for treasury	(4,294)	-	(4,294)	-	-	-
Sale of shares for treasury	532	-	532	-	-	-
Expenses of share issue and buybacks	(21)	-	(21)	(330)	-	(330)
Reallocation of prior year unrealised gains/losses	4,806	-	4,806	-	(4,806)	(4,806)
Realised gain on disposal of investments#	2,387	-	2,387	-	-	-
Net decrease in value of investments#	-	-	-	-	(18,568)	(18,568)
Management fee charged to capital#	(2,204)	-	(2,204)	-	-	-
Taxation relief from capital expenses#	61	-	61	-	-	-
Profit after taxation#	-	1,272	1,272	-	-	-
Dividends paid in the year	(11,870)	(3,369)	(15,239)	-	-	-
At 30 September 2019	72,401	1,309	73,710	28,397	26,909	55,306

 

^# The total of these items is (£17,052), which agrees to the total profit for the year.

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

 

Distributable reserves may also include any net unrealised gains on investments whose prices are quoted in an active market and deemed readily realisable in cash.

 

Share premium is recognised net of issue costs.

 

The Company does not have any externally imposed capital requirements.

 

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 full annual report and accounts of the Strategic Report.

 

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 Company aims to mitigate these risks by diversifying the portfolio across business sectors and asset classes.

 

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 with 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.

 

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 is influenced by the estimates, assumptions and judgements made in the fair valuation process (see 2.3 above). A sensitivity analysis is provided below which recognises that the valuation methodologies employed involve different levels of subjectivity in their inputs. The sensitivity analysis below is 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, which refers to the price of a recent investment.

Security	Valuation Basis	Key Variable inputs	Fair Value  £'000	Sensitivity %	Impact £'000	Impact % of Net Assets
	Rebased Cost	Latest funding round price	14,549	+/-10	1455	+/-1.0
Unquoted	Earnings Multiple	Estimated sustainable earnings Selection of comparable companies Application of illiquidity discount Probability estimation of Liquidation event*	27,132	+/-20	2,713	+/-1.8
	Offer less 10%	Current offer price received for sale Discount applied to offer	-	+/-10	-	-
Quoted AIM	Latest share price	N/A**	54,241	+/-10	5,424	+/-3.6

 

*A liquidation event is typically a company sale or an initial public offering (IPO).

**Latest share price is set by the market.

 

Interest rate risk

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

 

	As at 30 September 2019			As at 30 September 2018
	Total investment £'000	Weighted average interest rate %	Weighted average time for which rate is fixed years	Total investment £'000	Weighted average interest rate %	Weighted average time for which rate is fixed years
Fixed rate loan note securities	20,691	8.79	2.91	24,804	9.39	2.09
Floating rate sterling liquidity funds	18,140	-	-	29,020	-	-
Cash at bank and on deposit	9,792	-	-	1,090	-	-
	48,623			54,914

Movements in interest rates would not significantly affect net assets attributable to the Company's shareholders and total profits, due to interest rate income received from floating rate notes being less than 1 per cent of the total investments.

 

Credit risk

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

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

	As at	As at
	30 September	30 September
	2019	2018
	£'000	£'000
Cash at bank and on deposit	9,792	1,090
Interest, dividends & other receivables	176	231
	9,968	1,321

 

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 within the full Annual Report and Accounts.

 

The 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 2019 or 30 September 2018. No individual investment exceeded 5.3 per cent of the net assets attributable to the Company's shareholders at 30 September 2019 (2018: 4.8 per cent).

 

Liquidity risk

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.

 

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 2019 these investments were valued at £27,930,000 (2018: £30,110,000).

 

3.4 Investment 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	Class of Shares held	% of Equity	Profit (£m)	Net Assets (£m)	Results for year ended
Happy Days Consultancy	UK	A Ordinary	25.7	(1.9)	(8.2)	31 December 2018

 

 

3.5  Related parties

 

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 in the full annual report and accounts, whereby members and staff of the Manager are entitled to participate in all eligible unquoted investments alongside the Company.

 

During October and November 2018, Livingbridge VC LLP received £Nil (2018: £14,000) advisory fees, £55,000 (2018: £292,000) directors' fees for services provided to companies in the investment portfolio and incurred abort costs of £42,000 (2018: £34,000) with respect to investments attributable to BVT.

 

For the remainder of the year, Gresham House Asset Management Ltd received £107,000 (2018: £Nil) advisory fees, £206,000 (2018: £Nil) directors' fees for services provided to companies in the investment portfolio and incurred abort costs of £23,000 (2018: £Nil) with respect to investments attributable to BVT.

 

A related party relationship exists between Baronsmead Venture Trust and Happy Days Consultancy, owing to the significant influence held over the operations of the company. As at 30 September 2019, the loan balance stood at £5,027,000, including £1,950,000 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 investment manager. For further details on this please refer to the Full Investment Portfolio in the Appendices.

 

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

 

The following events occurred between the balance sheet date and the signing of these financial statements:

 

·      14 million shares were issued on 21 November 2019 at an allotment price of 76.8p under the current offer

 

·      Three full realisations: CR7 Services, realising proceeds of £Nil and making a return of 0.0x cost; Brady, realising proceeds of £ 0.01 million and making a return of 0.0x cost; and APC Technology Group, realising proceeds of £0.02 million and making a return of 0.3x cost

 

·      Two partial realisations: STM Group, realising proceeds of £0.1 million and making a return of 0.9x cost; and Ideagen plc, realising proceeds of £1.9 million and making a return of 4.9x cost

 

·      One new investment, Funding Xchange, and two follow on investments, Storyshare Holdings & Tribe, completed totalling £ 1.1 million

 

·      Purchased 188,915 Ordinary Shares of 10p at a price of 72.25p per share to be held in Treasury.

 

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

 

Corporate Information

 

Directors Peter Lawrence (Chairman) Valerie Marshall# Les Gabb* Susannah Nicklin†   Secretary Gresham House Asset Management Ltd   Registered Office 5 New Street Square London EC41 3TW   Investment Manager Gresham House Asset Management Ltd 5 New Street Square London EC41 3TW 0207 3875 9862   Registered Number 03504214

Registrars and Transfer Office Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZZ Tel: 0800 923 1533   Brokers Panmure Gordon & Co One New Change London EC4M 9AF Tel: 020 7886 2500   Auditors KPMG LLP Saltire Court 20 Castle Terrace Edinburgh EH1 2EG   Solicitors Dickson Minto Broadgate Tower 20 Primrose Street London EC2A 2EW   VCT Status Adviser PricewaterhouseCoopers LLP 1 Embankment Place London WC2N 6RH   Website www.baronsmeadvcts.co.uk

# Senior Independent Director and Chairman of the Nomination Committee

*Chairman of the Audit Committee

† Chairman of the Management Engagement and Remuneration Committee

 

 

END

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