TIDMBMD
RNS Number : 6955U
Baronsmead Second Venture Trust PLC
06 December 2021
Baronsmead Second Venture Trust plc
Annual Report and Audited Financial Statements
for the year ended 30 September 2021
The Directors of Baronsmead Second Venture Trust plc are pleased
to announce the Annual Financial Report for the year ended 30
September 2021. The Annual Report and Financial Statements can be
obtained from the following website: www.baronsmeadvcts.co.uk .
Financial highlights
-- Net asset value ("NAV") total return of 406.2p to
shareholders for every 100.0p invested at launch (January
2001).
-- NAV per share increased 29.3 per cent to 90.8p before
deduction of dividends for the financial year ended 30 September
2021.
-- Annual tax free dividend yield of 9.3 per cent based on 6.5p
dividends paid (including proposed final dividend of 3.5p) and
opening NAV of 70.2p.
-- GBP17.1 million of investments made into ten new and five
follow-on opportunities during the year.
Our investment objective
Baronsmead Second Venture Trust plc ("the Company") is a tax
efficient listed company which aims to achieve long-term investment
returns for private investors, including tax free dividends.
Investment policy
-- To invest primarily in a diverse portfolio of UK growth
businesses, whether unquoted or traded on AIM.
-- Investments are made selectively across a range of sectors in
companies that have the potential to grow and enhance their
value.
Dividend policy
-- The Board will, where possible, seek to pay two dividends to
shareholders in each calendar year, typically an interim dividend
in September and a final dividend following the Annual General
Meeting in February/March.
-- The Board will use, as a guide, when setting the dividends
for a financial year, a sum representing 7 per cent of the opening
net asset value of that financial year.
Key elements of the business model
Access to an attractive, diverse portfolio
The Company gives shareholders access to a diverse portfolio of
growth businesses.
The Company will make investments in growth businesses, whether
unquoted or traded on AIM, which are substantially based in the UK
in accordance with the prevailing VCT legislation. Investments are
made selectively across a range of sectors.
The Manager's approach to investing
The Manager endeavours to select the best opportunities and
applies a distinctive selection criteria based on:
-- Primarily investing in parts of the economy which are
experiencing long-term structural growth.
-- Businesses that demonstrate, or have the potential for, market leadership in their niche.
-- Management teams that can develop and deliver profitable and sustainable growth.
-- Companies with the potential to become an attractive asset
appealing to a range of buyers at the appropriate time to sell.
In order to ensure a strong pipeline of opportunities, the
Manager invests in building deep sector knowledge and networks and
undertakes significant proactive marketing to interesting target
companies in preferred sectors. This approach generates a network
of potentially suitable businesses with which the Manager maintains
a relationship ahead of possible investment opportunities.
The Manager as an influential shareholder
The Manager is an engaged and supportive shareholder (on behalf
of the Company) in both unquoted and significant quoted
investments. For unquoted investments, representatives of the
Manager often join the investee board. The role of the Manager with
investees is to ensure that strategy is clear, the business plan
can be implemented and that the management resources are in place
to deliver profitable growth. The intention is to build on the
business model and grow the company into an attractive target able
to be either sold or potentially floated in the medium term.
A more detailed explanation of how the business model is applied
is provided in the Other Matters section of the Strategic Report
below.
STRATEGIC REPORT
CHAIRMAN'S STATEMENT
I am delighted to be able to report an increase of 29.3 per cent
in the Company's NAV per share, before dividend payments, for the
financial year.
After the significant volatility seen in public markets during
the first months of 2020, we have seen excellent performance from
our AIM-traded investments in the year to 30 September 2021. The
unquoted portfolio has also performed well, led by investments in
software and technology enabled services companies as well as by a
recovery in the value of the multi-site restaurant businesses.
Results
Pence per
ordinary
share
------------------------------------------------------------- ----------
NAV as at 1 October 2020
(after final dividend) 70.2
------------------------------------------------------------- ----------
Valuation increase (29.3 per cent) 20.6
------------------------------------------------------------- ----------
NAV as at 30 September 2021
before dividends 90.8
------------------------------------------------------------- ----------
Less:
Interim dividend paid on
10 September 2021 (3.0)
------------------------------------------------------------- ----------
Proposed final dividend of 3.5p payable, after shareholder
approval, on 4 March 2022 (3.5)
------------------------------------------------------------- ----------
Illustrative NAV as at 30 September 2021 after proposed
dividends 84.3
------------------------------------------------------------- ----------
Portfolio review
At 30 September 2021, the Company's direct investment portfolio
was valued at GBP162 million and comprised investments in a total
of 82 companies of which 37 are unquoted and 45 are quoted
companies. The Company's direct investments in the LF Gresham House
UK Micro Cap Fund ("Micro Cap"), LF Gresham House UK Multi Cap
Income Fund ("Multi Cap") and in the LF Gresham House UK Smaller
Companies Fund ("Small Cap") were valued at GBP49 million at 30
September. These investments provide further diversity, giving
investment exposure to an additional 98 AIM-traded and fully listed
companies and thus spreading investment risk across some 180
portfolio companies.
During the 12 months to 30 September 2021, the underlying value
of the unquoted portfolio increased by 28 per cent, reflecting the
continued strong performance of the majority of investments. The
portfolio of directly held AIM investments increased by 52 per cent
during the year, recovering significantly from the early impact of
the COVID-19 pandemic on public markets.
Our Micro Cap fund delivered a return of 46 per cent, and our
Small Cap fund returned 60 per cent, compared to the IA UK Smaller
Companies Sector which increased by 51 per cent. The Multi Cap
Income fund increased by 33 per cent compared to the IA UK Equity
Income Sector that rose by 33 per cent for the 12 months to 30
September 2021.
The strong uplift in the value of the AIM traded holdings
emphasises the benefits of having a portfolio with both private
unquoted and publicly listed companies. Over the long-term, the
return profiles of the quoted and unquoted portfolios have proved
complementary, with both asset classes delivering robust
performances.
Investments and divestments
The Board is pleased to report that the Company has continued to
make new investments despite the disruption of COVID-19 and has
invested a total of GBP17 million in 15 companies over the year.
Further details of the new investments made are included in the
Manager's review. The new investments in earlier stage
opportunities may result in greater volatility in returns from the
Company over time. However, the more mature, established portfolio
of existing investments should assist in sustaining returns and
dividends for shareholders as the new portfolio develops and grows.
In addition to the number of holdings, the portfolio is well
diversified by sector, with a tilt towards technology, healthcare,
and to recurring revenue business models.
There have been several realisations from both the unquoted and
quoted portfolio during the year, reflecting the Manager's
continued focus on driving liquidity in the portfolio to create
realised capital profits to fund current and future dividends for
shareholders. For example, the sale of Pho, in the unquoted
portfolio, delivered total proceeds of GBP5.9 million for a gross
money multiple of 2.5x cost. The Manager also realised its
investment in Wey Education, in the quoted portfolio, which
delivered proceeds of GBP7.1 million for a total gross money
multiple of 13.6x cost. The Manager has made a select number of
profitable partial realisations of Cerillion plc during the year,
resulting in the receipt of proceeds of GBP3.1 million at an
aggregate of 5.6x original invested cost in this listed company.
The Company's investment into unquoted Storyshare Holdings was also
rolled into Evotix, a much larger business, in July 2021, to build
critical mass and improve the future returns prospects given that
the investment is currently being held at 0.4x cost.
Mobeus VCTs
The Board was supportive of the acquisition by Gresham House plc
of the VCT business of Mobeus Equity Partners LLP in September
2021. This acquisition enhances Gresham House's position within the
VCT market, increasing the funds under management across its VCT
range to approximately GBP850 million as at 30 September. The
existing Gresham House VCT team is now working alongside the newly
acquired Mobeus VCT team in managing the Company's portfolio and
the Board is pleased with the progress made thus far in relation
the integration of the two teams.
The acquisition enlarges the Gresham House VCT team
significantly and the Board believes that the combined platform
will enhance the Manager's ability to identify and manage
attractive early-stage investments. This is expected to benefit the
Company through more consistent and increased rates of unquoted
investment which will ultimately support the delivery of attractive
long-term performance for the Company's shareholders.
Dividends
The Board is pleased to declare a final dividend of 3.5p per
share for the year to 30 September 2021, payable on 4 March 2022.
This is in addition to the 3.0p interim dividend paid in September
and means that the total dividends for the year are 6.5p. This is a
9.3 per cent yield based on the opening NAV per share of 70.2p and
is above the target policy of 7 per cent of the NAV per share at
the start of the year.
The Company has good levels of realised reserves available to
fund future dividends and the Manager continues to focus on selling
investments and generating realised profits across the portfolio,
which help to sustain the payment of dividends.
Environmental, Social and Governance ("ESG") matters
Environmental, social and governance analysis is embedded into
the Company's investment processes by the Manager in order to build
and protect long-term value for investors. A framework based on ten
key ESG themes is used to analyse, monitor and report on ESG risks
and opportunities across the lifecycle of investments. Further
information in relation to the Manager's integration of ESG factors
in management of the Company's portfolio is set out below in the
Strategic Report. Your Board is particularly pleased to note the
focus of Gresham House in this area, with the addition of two new
ESG and sustainability team members to work alongside the
Sustainable Investment Director, Rebecca Craddock-Taylor.
Fundraising
In August 2021, the Board announced its intention to raise new
funds to enhance the Company's resources available for new and
follow-on investments over the next two to three years.
Consequently, in November 2021 the Company launched an offer for
subscription to raise GBP25 million (before costs) with an
additional GBP12.5 million over-allotment facility available as
required. As at the date of this statement there has been GBP15.5
million invested by shareholders and the offer remains open until
29 March 2022 unless filled earlier. We would like to thank
existing shareholders for their continued support and to welcome
new shareholders.
Annual General Meeting ("AGM")
The Company's last AGM was held as a hybrid meeting on 16
February 2021, due to government restrictions on public gatherings
at that time. This year, pending any future changes in
restrictions, we look forward to holding an AGM in person at
11.00am on 16 February 2022 at Saddlers' Hall, 40 Gutter Lane,
London, EC2V 6BR. As usual I will present my own review of the year
and will then be joined by the Manager. We would be delighted if
you would join us for light refreshments afterwards.
For any shareholders that do not wish to attend in person, we
will be live streaming the AGM and Manager's presentation.
Registration details for the live stream will be included in the
Notice of AGM. Voting will not be available via the online
streaming service and we encourage shareholders to exercise their
votes by submitting their proxy electronically or by post. The
Directors appreciate the engagement with shareholders that takes
place at the AGM and encourage shareholders to submit any questions
to the Board in advance of the meeting. Shareholders can submit
questions up until noon on 15 February 2022 in the following
ways:
-- By email: send your questions to baronsmeadvcts@greshamhouse.com
-- By telephone: contact Investor relations on 020 7382 0999
Change of auditor
The Audit and Risk Committee has considered the external audit
arrangements and held an audit tender process in early 2021.
Following the conclusion of this process, the Audit & Risk
Committee has appointed BDO LLP as the Company's auditor and KPMG
LLP has retired with effect from 28 May 2021.
Director changes
We have welcomed a new director to the Board this year, Graham
McDonald. Graham was appointed at the Company's AGM in February
2021 and brings extensive private equity experience and market
knowledge to our Company.
Outlook
Although the UK has been efficient in its vaccination program,
the COVID-19 pandemic continues to impact us all. We continue to
monitor developments and any potential impact on the portfolio but
are encouraged by the level of resilience already demonstrated by
our investee companies and also by our key service providers.
The disruption and market dislocation has also provided, and
will keep on providing, investment opportunities and the Manager
remains focused on investing in businesses with strong fundamental
characteristics which should continue to grow consistently
throughout the economic cycle.
Overall, the economy has rebounded strongly following the sharp
decline in activity and fall in public markets immediately after
the first national lockdown in March 2020. However, the ongoing
recovery continues to be uneven as the UK government's COVID-19
support packages are progressively withdrawn and inflationary and
supply chain pressures flow through the economy. The Manager
anticipates this will lead to increased public market volatility
and, in some sectors reliant on physical goods, more uncertainty
over the deliverability of short-term sales forecasts. Operating
margin pressure due to wage inflation is also expected.
Despite the potential economic headwinds, the Board continues to
believe it is a good time to be investing in earlier stage,
innovative and high growth potential businesses looking to take
advantage of changes in consumer behaviour and the disruption of
traditional supply chains being driven by technology. The level of
interesting investment opportunities being reviewed by the Manager
continues to be strong. As the earlier stage portfolio continues to
mature, there is also an increase in existing high potential
portfolio companies looking for follow-on capital to support future
growth.
Sarah Fromson
Chairman
6 December 2021
MANAGER'S REVIEW
This year has seen a strong overall performance from the
investment portfolio despite continued uncertainty caused by
COVID-19. The portfolio is well diversified, with exposure to over
180 quoted and unquoted companies, and has delivered an increase in
net asset value of 29.3 per cent over the year.
PORTFOLIO REVIEW
Overview
The net assets of GBP248 million were invested as follows:
NAV % of Number % return
(GBPm) NAV* of in
Asset class Investees** the year***
---------------------------------------- -------- ----- ------------- -------------
Unquoted 60 24 37 28
---------------------------------------- -------- ----- ------------- -------------
AIM-traded companies 102 41 45 52
---------------------------------------- -------- ----- ------------- -------------
LF Gresham House UK Micro Cap Fund 34 14 51 46
---------------------------------------- -------- ----- ------------- -------------
LF Gresham House UK Multi Cap Income
Fund 9 4 47 33
---------------------------------------- -------- ----- ------------- -------------
LF Gresham House UK Smaller Companies
Fund 6 2 49 60
---------------------------------------- -------- ----- ------------- -------------
Liquid assets (#) 37 15 N/A -
======================================== -------- ----- ------------- -------------
Total 248 100 229 -
---------------------------------------- -------- ----- ------------- -------------
* By value as at 30 September 2021.
** Includes investee companies with holdings by more than one
fund. Total number of individual companies held is 180.
*** Return includes interest received on unquoted realisations
during the year.
(#) Represents cash, OEICs and net current assets.
The tables below show the breakdown of new investments and
realisations over the course of the year and below is a commentary
the key highlights in both the unquoted and quoted portfolios.
Investment activity - unquoted and quoted
The Company's investment strategy is primarily focused on
companies operating in parts of the economy that we believe are
benefiting from long-term structural growth trends and in sectors
where we have deep expertise and network. The amount of capital
invested in each business is matched to the scale, maturity and
underlying risk profile of the company seeking investment.
During the year, GBP17.1 million was invested in 15 companies
including ten new additions to the portfolio and five follow-on
investments. Below are descriptions of some of the new investments
made:
-- Investments were made into eConsult Ltd (unquoted) and
Metrion Biosciences Ltd (unquoted), both specialist healthcare
providers. eConsult provides a clinically led online consultation
service to digitally triage patients, reducing the number of
face-to-face consultations required, while Metrion is a Contract
Research Organisation focused on delivering a range of high-quality
ion channel drug discovery services.
-- Investments into RevLifter Ltd (unquoted), Scurri Web
Services Ltd (unquoted) and Patchworks Ltd (unquoted) follow our
focus on companies supporting the shift to e-commerce. RevLifter
has developed an Artificial Intelligence ("AI") platform using
advanced behavioural analytics to deliver tailored promotions to
consumers, Scurri provides a cloud-based logistics management
platform, and Patchworks provides integration software to the
multiple operational systems used by e-commerce businesses.
-- Three new quoted investments were completed during the year.
These companies also operate in our core investment focus areas of
niche software and pharmaceutical outsourced service providers.
Crimson Tide plc provides a field service management software
platform and service, Crossword Cybersecurity plc sources and
develops academic ideas into commercial cyber security products and
services; andDeepverge plc is a software tool that joins technology
platforms with partners in AI, clinical research, medical devices,
life science and environmental science.
The Company made additional investments into five existing
portfolio companies, one quoted and four unquoted, across the year.
This is consistent with the investment strategy of continuing to
back our high potential assets with further capital to support
future growth. We anticipate the level of follow-on investment will
continue to grow as the earlier stage portfolio continues to
mature.
Unquoted portfolio
Performance
The unquoted portfolio has performed well during the year,
increasing in value by 28 per cent. There has been ongoing
disruption due to COVID-19, particularly affecting our multi-site
nursery chain, travel businesses and casual dining restaurants,
driven by the national lockdowns and social distancing
requirements. However revenues have bounced back strongly since the
economy reopened. In aggregate, we have seen consistently robust
performance in our technology, healthcare and services companies
within the portfolio, especially those with recurring or contracted
revenue business models with good visibility over future revenues
and cashflows.
As Manager we remain highly engaged with the management teams
within the portfolio, sharing insight and best practice to help
them both manage risk and spot opportunities in a quickly changing
environment. We have continued to invest in our in-house talent and
technology functions to support our portfolio companies, which
alongside our extensive network of earlier stage, high growth
company experts, ensure we are well positioned to help our
portfolio companies develop and scale.
Divestments
The Company successfully realised its investment in Pho in
August 2021, delivering GBP5.9 million in proceeds and an initial
investment return of 2.5x(1) . The deal includes an earn-out
structure that could increase the total deal return to an estimated
3.0x(1) original invested cost. Pho is a casual restaurant chain
serving Vietnamese street food, and although it was significantly
affected by the government restrictions during the COVID-19
pandemic, its differentiated consumer proposition and rapidly
growing sales in the home delivery channel resulted in a strong
trading recovery. The Company also successfully realised its
investment in Ten10 in October 2020, delivering proceeds of GBP7.3
million and an overall investment return of 3.7x(1) .
During the year, the Company also rolled its investment in
Storyshare Holdings Limited into Evotix Limited. The Storyshare
product integrates well with the Evotix offering and we believe the
customer synergies and the larger SHE business will enhance
investment return prospects for the Company's shareholders as this
investment is currently being held at 0.4x(1) cost.
(1) All mutiples are quoted gross.
Quoted portfolio (AIM-traded investments)
Performance
The quoted portfolio has performed exceptionally well,
increasing 52 per cent over the course of the year. This was driven
by the larger and more established AIM holdings, with particular
emphasis on those in resilient parts of the market where their
businesses benefitted from trends such as digital transformation
that have been accelerated by the pandemic. Significant positive
contributions came from: Cerillion, driven by robust results and
forecast upgrades during the year underpinned by new business;
Netcall, as revenue growth accelerated and earnings quality
improved due to an increasing proportion of contracted recurring
income; and Ideagen, which re-rated positively due to strong
resilient earnings and increased scale in its recurring revenue
base.
Detractors from performance were LoopUp, due to earnings
underperforming market expectations; Cloudcall Group, a telephony
software provider to the recruitment sector which was significantly
impacted by COVID-19; and Rosslyn Data Technologies which
underperformed market expectations although we remain positive
about the long term opportunity as it evolves its management team
and go-to-market strategy with support from the Manager.
We closely monitor our AIM portfolio with a rolling programme of
independent reviews of the most significant AIM holdings and
continue to be positive on the long-term investment prospects of
these companies. Many of the larger quoted investments have been
long-term holdings. These companies are typically profitable, cash
generative businesses with low levels of financial gearing and
continue to have attractive long-term growth prospects.
Divestments
Proceeds totalled GBP10.9 million during the year following two
full and one partial realisation. Collagen Solutions was fully
realised following a takeover by Rosen's Diversified, returning
1.3x cost in November 2020. The Company's investment in Wey
Education was also fully realised following a takeover by Inspired
Education Holdings, a private equity backed trade buyer, returning
13.6x cost, the highest money multiple return in the history of the
Trust, and delivering proceeds of GBP7.1million. The opportunity to
crystallise some profits was taken for Cerillion plc; over the
course of the year proceeds of GBP3.1million were realised at 5.6x
cost.
Collective Investment Vehicles
The Manager believes that the Company's investments in the LF
Gresham House UK Micro Cap Fund ("Micro Cap"), LF Gresham House UK
Multi Cap Income Fund ("Multi Cap"), and LF Gresham House UK
Smaller Companies Fund ("Small Cap") are a core component of the
Company's portfolio construction. These investments provide
shareholders with additional diversification through exposure to an
additional 98 underlying companies, as well as access to the
potential returns available from a larger and more established
group of companies that fall within the Manager's core area of
expertise.
Over the year Micro Cap delivered a 46 per cent return, Multi
Cap delivered 33 per cent and the Small Cap fund delivered 60 per
cent.
Micro Cap and Multi Cap are both highly rated by independent
ratings agencies. Each fund has performed well on an absolute basis
during the year and has performed in line with its respective peer
group. Micro Cap's long term cumulative performance has been
consistently top quartile within the IA UK Smaller Companies sector
and it is the sixth best performing fund over the past 10 years.
Multi Cap has been the top performing fund within the IA UK Equity
Income sector over three years and since launch in June 2017. Small
Cap has also achieved top quartile cumulative performance since
launch in 2019, and once it has a three-year track record it will
be marketed externally.
Liquid assets (cash and near cash)
The Company had cash and liquidity OEICs of approximately
GBP38.7 million at the year-end. This asset class is conservatively
managed to take minimal or no capital risk.
ESG highlights
The Manager has continued to invest in its sustainable
investment team, with the addition of two new members during the
year. The first ESG survey of our unquoted portfolio companies was
also completed during the year. The survey identified common
challenges across the portfolio as well as establishing benchmark
metrics for future development and reporting. Further details on
our ESG approach and policies can be found below in the strategic
report.
Outlook
Despite the economic and social challenges over the past twelve
months, the opportunity to invest and support growth in
entrepreneurial earlier-stage UK businesses remains strong. Our
focus on investing in parts of the economy which are experiencing
structural growth and in sectors where we have extensive talent
networks and domain expertise continues to identify attractive
investment opportunities. Many of our management teams have spotted
the opportunity to innovate and accelerate growth to take advantage
of the changes and disruption across the market. We expect the rate
of follow-on investment to increase across the portfolio as these
companies scale and require additional capital to realise their
growth plans.
As expected, several parts of the portfolio have faced trading
headwinds. Demand within our consumer travel and several other
service-based businesses remain impacted by the shift in consumer
and corporate spending driven by COVID-19. In certain sectors, we
expect more variability in company trading and a general increase
in wage inflation and supply chain disruption going forward.
However, the portfolio continues to be highly diversified and
overall is defensively positioned.
Following the integration of the Mobeus VCT team during October
2021, the deal team consists of over 20 investment professionals.
Significant investment has also been made to strengthen our
in-house talent and technology capability to help convert new deal
opportunities and to add value to our portfolio companies post
investment. We remain extremely positive in the ability of more
agile, fast moving earlier stage companies to outperform in a more
uncertain economic environment and in our ability to invest capital
and deliver attractive long-term returns for the Company.
Gresham House Asset Management Ltd
Investment Manager
6 December 2021
INVESTMENTS IN THE YEAR
Book cost
Company Location Sector Activity GBP'000
------------------------- -------------- -------------------- ----------------------------------------- ----------
Unquoted investments
New
Healthcare & Online consultation provider
eConsult Ltd Surrey Education used by GP practices and hospitals 2,599
------------------------- -------------- -------------------- ----------------------------------------- ----------
Scurri Web Services Cloud-based delivery management
Ltd London Technology platform 2,293
------------------------- -------------- -------------------- ----------------------------------------- ----------
Leading integration platform
for fast-growing retail and ecommerce
Patchworks Ltd Nottingham Technology businesses 1,716
------------------------- -------------- -------------------- ----------------------------------------- ----------
Provides real time life science
Healthcare & intelligence as a subscription
Airfinity Ltd London Education service 1,559
------------------------- -------------- -------------------- ----------------------------------------- ----------
Metrion Biosciences Healthcare & Ion channel drug discovery and
Ltd Cambridge Education safety assessment services provider 1,192
Banking and accounting software
Counting Ltd London Business Services for small businesses 1,059
------------------------- -------------- -------------------- ----------------------------------------- ----------
A-I platform using advanced behavioural
analytics to deliver tailored
RevLifter Ltd London Technology promotions to users 779
------------------------- -------------- -------------------- ----------------------------------------- ----------
Follow-on
Glisser Ltd London Business Services Audience engagement software 795
------------------------- -------------- -------------------- ----------------------------------------- ----------
Online travel agent specialising
TravelLocal Ltd London Consumer Markets in tailor-made holidays 530
------------------------- -------------- -------------------- ----------------------------------------- ----------
Equipsme (Holdings)
Ltd London Business Services SME health insurance plans provider 370
------------------------- -------------- -------------------- ----------------------------------------- ----------
Munnypot Ltd West Sussex Technology Automated online investment platform 16
------------------------- -------------- -------------------- ----------------------------------------- ----------
Total unquoted investments 12,908
---------------------------------------------------------------------------------------------------------- ----------
AIM-traded investments
New
Healthcare & Environmental and life sciences
Deepverge plc York Education group 1,590
------------------------- -------------- -------------------- ----------------------------------------- ----------
Commercialisation of university
Crossword Cybersecurity research-based cyber security
plc London Technology software and consulting 1,282
------------------------- -------------- -------------------- ----------------------------------------- ----------
Crimson Tide
plc Kent Technology Mobile business solutions 668
------------------------- -------------- -------------------- ----------------------------------------- ----------
Follow-on
CloudCall Group Provides cloud software and integrated
plc Leicester Technology communications services 606
------------------------- -------------- -------------------- ----------------------------------------- ----------
Total AIM-traded investments 4,146
---------------------------------------------------------------------------------------------------------- ----------
Total investments in the year 17,054
---------------------------------------------------------------------------------------------------------- ----------
REALISATIONS IN THE YEAR
First Original
investment book cost(#) Proceeds Overall multiple
Company date GBP'000 GBP'000 return
------------------------------ ------------------------- ------------ ------------- -------- ----------------
Unquoted realisations
Ten10 Group Ltd Full trade sale Feb 15 2,331 7,254 3.7*
Pho Holdings Ltd Full trade sale Jul 12 2,422 5,902 2.5*
------------------------------ ------------------------- ------------ ------------- -------- ----------------
Total unquoted realisations 4,753 13,156 2.8*
----------------------------------------------------------------------- ------------- -------- ----------------
AIM-traded realisations
Wey Education plc Takeover Dec 15 523 7,091 13.6
Cerillion plc Market sale Jul 15 564 3,139 5.6
Collagen Solutions
plc Takeover Mar 17 551 716 1.3
Total AIM-traded realisations 1,638 10,946 6.7
----------------------------------------------------------------------- ------------- -------- ----------------
Total realisations
in the year 6,391 24,102 3.8
----------------------------------------------------------------------- ------------- -------- ----------------
(#) Residual book cost at realisation date.
* Includes interest/dividends received, loan note redemptions
and partial realisations accounted for in prior periods.
Proceeds at time of realisation including interest.
Ten largest investments
The top ten investments by current value at 30 September 2021
illustrate the diversity of investee companies within the
portfolio. For consistency across the top ten and based on guidance
from the AIC, data extracted from the last set of published audited
accounts is shown in the tables below. However, this may not always
be representative of underlying financial performance for several
reasons. Published accounts lodged at Companies House may be out of
date and the Manager works from up-to-date management accounts and
has access to draft but unpublished annual audited accounts
prepared by the companies. In addition, pre-tax profit in statutory
accounts is often not a representative indicator of underlying
profitability as it can be impacted by, for example, deductions of
non-cash items such as amortisation, that relate to investment
structures rather than operating performance.
1. Cerillion plc
London
Quoted
www.cerillion.com
All funds managed by Gresham House
First investment: July 2015
Total original cost: GBP2,974,000
Total equity held: 13.3%
Baronsmead Second Venture Trust only
Original cost: GBP1,636,000
Valuation: GBP16,572,000
Valuation basis: Bid Price
Income realised in the year: GBP134,000
% of equity held: 7.3%
Voting Rights: 7.3%
Year ended 30 September
2020 2019
GBP million GBP million
Sales: 20.8 18.8
Pre-tax profits: 2.6 2.4
Net Assets: 16.0 15.5
No. of Employees: 235 203
Source: Cerillion plc, Annual Report and Accounts 30 September
2020
2. Netcall plc
Hertfordshire
Quoted
www.netcall.com
All funds managed by Gresham House
First investment: July 2010
Total original cost: GBP4,354,000*
Total equity held: 23.9%
Baronsmead Second Venture Trust only
Original cost: GBP2,616,000
Valuation: GBP12,869,000
Valuation basis: Bid Price
Income recognised in the year: GBP37,000
% of equity held: 9.9%
Voting Rights: 9.9%
Year ended 30 June
2021 2020
GBP million GBP million
Sales: 27.2 25.1
Pre-tax profits: 1.0 0.5
Net Assets: 24.6 22.9
No. of Employees: 235 234
Source: Netcall plc, Annual Report and Accounts, 30 June 2021
* Includes Baronsmead VCTs only
3. Carousel Logistics Ltd
Sittingbourne
Unquoted
www.carousel.eu
All funds managed by Gresham House
First investment: October 2013
Total original cost: GBP4,246,000
Total equity held: 26.7%
Baronsmead Second Venture Trust only
Original cost: GBP2,336,000
Valuation: GBP10,699,000
Valuation basis: Earnings Multiple
Income recognised in the year: GBP210,000
% of equity held: 14.7%
Voting rights: 14.7%
Year ended 31 December
2020 2019
GBP million GBP million
Sales: 51.3 51.6
Pre-tax profits: (0.3) (2.3)
Net Assets: (5.6) (6.4)
No. of Employees: 225 283
Source: Carousel Logistics Holdings Limited, Annual Report and
Financial Statement 31 December 2020
4. Ideagen plc
Nottinghamshire
Quoted
www.ideagen.com
All funds managed by Gresham House
First investment: January 2013
Total original cost: GBP1,309,000
Total equity held: 1.9%
Baronsmead Second Venture Trust only
Original cost: GBP720,000
Valuation: GBP8,422,000
Valuation basis: Bid Price
Income recognised in the year: GBP9,000
% of equity held: 1.0%
Voting rights: 1.0%
Year ended 30 April
2021 2020
GBP million GBP million
Sales: 65.6 56.6
Pre-tax profits: 0.8 (0.1)
Net Assets: 125.6 76.9
No. of Employees: 612 537
Source: Ideagen plc, Annual Report and Accounts, 30 April
2021
5. IDOX plc
Reading
Quoted
www.idoxgroup.com
All funds managed by Gresham House
First investment: May 2002
Total original cost: GBP1,642,000*
Total equity held: 4.9%
Baronsmead Second Venture Trust only
Original cost: GBP1,028,000
Valuation: GBP7,753,000
Valuation basis: Traded price
Income recognised in the year: GBP33,000
% of equity held: 2.5%
Voting rights: 2.5%
Year ended 31 October
2020 2019
GBP million GBP million
Sales: 68.0 65.5
Pre-tax profits: 2.7 (0.0)
Net Assets: 47.0 44.6
No. of Employees: 637 671
Source: IDOX plc, Annual Report and Accounts, 31 October
2020
* Includes Baronsmead VCTs only
6. IWP Holdings Ltd
London
Unquoted
www.iwpuk.co.uk
All funds managed by Gresham House
First investment: July 2019
Total original cost: GBP3,000,000
Total equity held: 9.0%
Baronsmead Second Venture Trust only
Original cost: GBP1,587,000
Valuation: GBP5,679,000
Valuation basis: Earnings Multiple
Income recognised in the year: GBPnil
% of equity held: 4.2%
Voting rights: 6.4%
Year ended 31 March
A full set of accounts is not publicly available as the company
is registered in Jersey.
IWP has a network of 24 IFA businesses and has a turnover of c.
GBP24 million (year ended 31 March 2021).
7. Anpario plc
Nottinghamshire
Quoted
www.anpario.com
All funds managed by Gresham House
First investment: November 2006
Total original cost: GBP966,000
Total equity held: 6.0%
Baronsmead Second Venture Trust only
Original cost: GBP662,000
Valuation: GBP5,561,000
Valuation basis: Bid Price
Income recognised in the year: GBP86,000
% of equity held: 4.1%
Voting rights: 4.1%
Year ended 31 December
2020 2019
GBP million GBP million
Sales: 30.5 29.0
Pre-tax profits: 5.4 4.4
Net Assets: 37.5 35.6
No. of Employees: 120 114
Source: Anpario plc, Annual Report 31 December 2020
8. Inspired plc
Lancashire
Quoted
www.inspiredenergy.co.uk
All funds managed by Gresham House
First investment: November 2011
Total original cost: GBP1,435,000*
Total equity held: 19.8%
Baronsmead Second Venture Trust only
Original cost: GBP861,000
Valuation: GBP4,872,000
Valuation basis: Bid Price
Income recognised in the year: GBP60,000
% of equity held: 2.8%
Voting rights: 2.8%
Year ended 31 December
2020 2019
GBP million GBP million
Sales: 46.1 43.7
Pre-tax profits: (4.5) 3.1
Net Assets: 66.3 59.3
No. of Employees: 521 423
Source: Inspired Energy plc, Annual Report and Accounts 2020
* Includes Baronsmead VCTs only
9. Bioventix plc
Surrey
Quoted
www.bioventix.com
All funds managed by Gresham House
First investment: June 2013
Total original cost: GBP562,000*
Total equity held: 4.9%
Baronsmead Second Venture Trust only
Original cost: GBP309,000
Valuation: GBP4,594,000
Valuation basis: Bid Price
Income recognised in the year: GBP174,000
% of equity held: 2.3%
Voting rights: 2.3%
Year ended 30 June
2021 2020
GBP million GBP million
Sales: 10.9 10.3
Pre-tax profits: 8.1 8.2
Net Assets: 11.8 12.5
No. of Employees: 17 16
Source: Bioventix plc, Annual Report and Financial Statements 30
June 2021
* Includes Baronsmead VCTs only
10. Happy Days Ltd
Cornwall
Unquoted
www.happydaysnurseries.com
All funds managed by Gresham House
First investment: April 2012
Total original cost: GBP7,600,000
Total equity held: 64.9%
Baronsmead Second Venture Trust only
Original cost: GBP4,180,000
Valuation: GBP3,510,000
Valuation basis: Earnings Multiple
Income recognised in the year: GBPnil
% of equity held: 35.7%
Voting rights: 30.8%
Year ended 31 December
2020 2019
GBP million GBP million
Sales: 8.9 11.1
Pre-tax profits: (3.0) (1.3)
Net Assets: (12.7) (9.7)
No. of Employees: 386 393
Source: H. Days Holdings Limited 31 December 2020
PRINCIPAL RISKS AND UNCERTAINTIES
The Board has carried out a robust assessment of the principal
and emerging risks and uncertainties facing the Company and has
assessed the appropriate measures to be taken in order to mitigate
these risks as far as practicable. There is an ongoing process for
identifying, evaluating and managing these risks which is part of
the governance framework detailed further in the Corporate
Governance section of this report.
Principal Context Specific risks we Possible impact Mitigation
Risk face
------------------------ ------------------------ ------------------------ -----------------------
Loss of The Company must Breach of any of The loss of VCT status The Board maintains a
approval comply the rules enabling would result in safety margin
as a Venture with section 274 of the Company to hold shareholders on all VCT tests to
Capital the Income Tax Act VCT status could who have not held ensure that breaches
Trust 2007 which enables result in the loss their shares for the are unlikely to be
its investors to take of that status. designated holding caused by unforeseen
advantage of tax period having to repay events or shocks. The
relief the income tax relief Investment Manager
on their investment they had already monitors all of the
and on future returns. obtained VCT tests on an
and future dividends ongoing basis and the
and gains would be Board reviews
subject to income the status of these
tax and capital gains tests on a quarterly
tax. basis. Specialist
advisors review
the tests on a
bi-annual basis and
report to the Audit &
Risk Committee
on their findings.
------------------------ ------------------------ ------------------------ -----------------------
Legislative VCTs were established A change in government The Company might The Board and the
in 1995 to encourage policy regarding not be able to Investment Manager
private individuals the funding of small maintain engage on a regular
to invest in early companies or changes its asset base leading basis with HMT
stage companies that made to VCT to its gradual decline and industry
are considered to regulations and potentially an representative bodies
be risky and therefore could result in inability to maintain to demonstrate the
have limited funding a cessation of the either its buy back cost benefit of
options. In return tax reliefs for or dividend policies. VCTs to the economy
the state provides VCT investors or in terms of
these investors with changes to the reliefs employment
tax reliefs which that would make generation and
fall under the them less attractive taxation revenue. In
definition to investors. addition, the Board
of state aid. and the Investment
Manager have
considered the
options
available to the
Company in the event
of the loss of tax
reliefs to ensure
that it can continue
to provide a
strong investment
proposition for
its shareholders
despite the loss
of tax reliefs.
------------------------ ------------------------ ------------------------ -----------------------
Investment The Company invests Investment in poor Reduction in both The Company has a
performance in small, mainly quality companies the capital value diverse portfolio
UK-based with the resultant of investors where the cost of any
companies, both risk of a high level shareholdings one investment
unquoted of failure in the and in the level of is typically less
and quoted. Smaller portfolio. income distributed. than 5 per cent
companies often have of NAV, thereby
limited product lines, limiting the impact
markets or financial of any one failed
resources and may investment. The
be dependent for their Investment Management
management on a team has a strong
smaller and consistent track
number of key record over a
individuals long period. The
and hence tend to Investment Manager
be riskier than larger undertakes extensive
businesses. due diligence
procedures on every
The COVID-19 pandemic new investment
continues to have and reviews the
a significant impact portfolio composition
on the performance maintaining a wide
of the consumer spread of holdings
markets in terms of financing
sector in particular, stage and industry
with an uneven sector.
recovery
across all other In light of the
sectors. COVID-19 pandemic,
the Investment
Manager has
undertaken
a thorough risk
review of the
portfolio
companies which has
been reviewed
by the Board. This
has highlighted
the uneven recovery
across different
sectors, with many
businesses facing
inflationary and
supply chain
pressures.
The Investment
Manager has engaged
with management teams
to develop plans
to mitigate the
impact of these
pressures.
------------------------ ------------------------ ------------------------ -----------------------
Economic, Whilst the Company Events such as fiscal Reduction in the value The Company invests
political invests in policy changes, of the Company's in a diversified
and other predominantly Brexit, economic assets portfolio of
external UK businesses, the recession, movement with a corresponding companies across a
factors UK economy relies in interest or impact on its share number
heavily on Europe currency price may result in of industry sectors,
as one of its largest rates, civil unrest, the loss of investors which provides
trading partners. war or political through buy backs protection against
This, together with uncertainty or and may limit its shocks as the impact
the increase in pandemics ability to pay on individual sectors
globalisation, can adversely affect dividends. can vary depending
means that economic the trading upon the
unrest and shocks environment circumstances. In
in other for underlying addition,
jurisdictions, investments the Investment
as well as in the and impact on their Manager uses a
UK, can impact on results and limited
UK companies, valuations. amount of bank
particularly gearing in its
smaller ones that investments
are more vulnerable which enables its
to changes in trading investments to
conditions. In continue
addition, trading through
the potential impact difficult economic
of leaving the conditions. The Board
European monitors and
Union remains reviews the position
uncertain. of the Company,
ensuring that
The risks posed by adequate cash
the COVID-19 pandemic balances
impact on all the exist to allow
economic, political flexibility. The
and other external Board
factors the Company reviews the make up
faces. and progress of
the portfolio each
quarter to ensure
that it remains
appropriately
diversified
and funded.
------------------------ ------------------------ ------------------------ -----------------------
Regulatory The Company is Failure of the Company The Company's The Board and the
& Compliance authorised to comply with any performance Investment Manager
as a self managed of its regulatory could be impacted employ the services
Alternative Investment or legal obligations severely by financial of leading regulatory
Fund Manager ("AIFM") could result in penalties and a loss lawyers, sponsors,
under the Alternative the suspension of of reputation auditors and other
Investment Fund its listing by the resulting advisers to ensure
Managers FCA and/or financial in the alienation the Company complies
Directive ("AIFMD") penalties and sanction of shareholders, a with all of its
and is also subject by the regulator significant demand regulatory
to the Prospectus or a qualified audit to buy back shares obligations.
and Transparency report. and an inability to The Board has strong
Directives. attract future systems in place
It is required to investment. to ensure that the
comply with the The suspension of Company complies
Companies its shares would with all of its
Act 2006 and the FCA result regulatory
Listing Rules. in the loss of its responsibilities.
VCT taxation status The Investment
and most likely the Manager has a strong
ultimate liquidation compliance culture
of the Company. and employs dedicated
compliance
specialists within
its
team who support the
Board in ensuring
that the Company is
compliant.
The Company Secretary
provides a regulatory
update at each Board
meeting.
------------------------ ------------------------ ------------------------ -----------------------
Operational The Company relies The risk of failure Errors in The Board has
on a number of third of the systems and shareholders' appointed an Audit
parties, in particular controls of any records or and
the Manager, to of the Company's shareholdings, Risk Committee who
provide advisers including incorrect marketing review the internal
it with the necessary a cyber attack, literature, non control ("ISAE3402")
services such as leading to an compliance and/or internal
registrar, inability with listing rules, audit reports from
sponsor, custodian, to service shareholder loss of assets, breach all significant
receiving agent, needs adequately, of legal duties and third party service
lawyers to provide accurate inability to provide providers, including
and tax advisers. reporting and accurate reporting the Investment
accounting and accounting all Manager, on a
and to ensure leading to bi-annual
adherence reputational basis to ensure that
to all VCT legislation risk and the potential they have strong
rules. for litigation. A systems and controls
cyber attack or data in place including
breach could lead Business Continuity
to loss of sensitive Plans and matters
shareholder data relating to cyber
resulting security. The Board
in a breach and regularly reviews the
liability performance
under the General of its service
Data Protection providers to ensure
Regulation. that they continue to
have the necessary
expertise and
resources to provide
a high class service
and always where
there have been any
changes in key
personnel or
ownership.
The operational
requirements of the
Company, including
from its service
providers, have been
subject to rigorous
testing (including
remote working
and virtual meetings)
as to their
application during
the COVID-19
pandemic,
where increased use
of out-of-office
working and online
communication
continues
to be required. To
date the operational
arrangements have
proven robust.
------------------------ ------------------------ ------------------------ -----------------------
The financial risks faced by the Company are covered within the
Notes to the Financial Statements below.
The Company is facing the key emerging risks of climate change
and ESG, given the regulatory, operational and potentially
reputational implications if not appropriately addressed. In order
to address these emerging risks, when looking to make a new
investment, the Manager uses an ESG Decision Tool to identify any
material ESG risks that need to be managed and mitigated. For
further detail, see the full Annual Report.
The Board considers the COVID-19 pandemic and Brexit to be
factors which exacerbate existing risks, rather than new emerging
risks. Their impact is considered within the relevant risks
above.
Sustainable Investing
The company is required, by company law, to provide details of
environmental (including the impact of the company's business on
the environment), employee, human rights, social and community
issues, including information about any policies it has in relation
to these matters and the effectiveness of these policies. Since the
company does not have any employees and it has no direct impact on
the community or the environment due to its status as a VCT, the
company does not maintain specific policies in relation to these
matters.
However, the board is conscious of the potential impact of its
investments on the environment as well as its social and corporate
governance responsibilities. The board and the manager believe that
sustainable investment involves the integration of ESG factors
within the investment process and that these factors should be
considered alongside financial and strategic issues. The company
therefore complies indirectly with ESG requirements through its
monitoring of the ESG impact of its investee companies.
Environmental, Social, and Governance update from the
Manager
The Manager is committed to sustainable investment as an
integral part of its business strategy. During 2021, The Manager
has taken further steps to formalise its approach to sustainability
and has put in place several policies and processes to ensure
environmental, social and governance ("ESG") factors and
stewardship responsibilities are built into asset management across
all funds and strategies, including venture capital trusts.
The Manager published its inaugural Sustainable Investment
Report in 2021, that along with existing asset specific policies,
including the Public Equity Policy and the Private Equity Policy,
can be found on the Gresham House website. These reports and
policies cover the Manager's sustainable investment commitments,
how the investment processes meet these commitments and the
application of the sustainable investment framework. The Gresham
House Board and Management Committee assess adherence to the
commitments in the Sustainable Investment Policies on an annual
basis.
Sustainable Investing Committee
The Manager formed a Sustainable Investing Committee (SIC) at
the start of 2020. It meets monthly and drives sustainability
related deliverables, whilst providing a forum to share best
practice, ideas and education. The Committee is chaired by the
Director of Sustainable Investment and has representation from the
Gresham House Management Committee, each asset division, sales and
marketing.
Embedding ESG analysis
A framework based on ten key ESG themes is used to structure
analysis, monitor and report on ESG risks and opportunities across
the lifecycle of investments.
The ten themes are the basis of the ESG Decision Tool which
supports the investment team in implementing the commitments made
in the sustainable investment policies. The ESG Decision Tool is
completed as part of the due diligence process prior to investment
for all VCT investments.
The Tool will not tell the Manager whether to invest or not,
instead it aims to provide a rational and replicable assessment of
key ESG risks which should be considered prior to investment, and
to help rank the significance of each risk. It is up to the Manager
to decide whether it is sufficiently comfortable with these risks
to proceed with an investment.
The Manager believes the "G" (Governance) of ESG is the most
important factor in its investment processes for public and private
equity. Board composition, governance, control, company culture,
alignment of interests, shareholder ownership structure,
remuneration policy etc. are important elements that will feed into
the Manager's analysis and the company valuation.
The "E" and "S" (Environmental and Social) are assessed as risk
factors during due diligence to eliminate companies that face
environmental and social risks that cannot be mitigated through
engagement and governance changes.
Where material ESG risks are identified, these are reviewed by
the Manager and a decision on how to proceed is documented. The
Manager will then proactively follow up with the investee company
management team and ensure appropriate corrective and preventative
action is taken and any material issues or incidents are recorded
by the Manager.
Sustainable investing - Baseline ESG survey
The Manager has been working over the last year to better
understand how well portfolio companies understand relevant ESG
risks and how they are addressing them as part of their
operations.
Earlier in 2021, the Manager conducted an ESG survey on the
unquoted investments to identify a baseline understanding of how
portfolio companies think about ESG, and which ESG data is already
being reported and monitored.
The results were analysed by the Manager's Sustainable
Investment team and overlayed with a well-known sustainability
materiality assessment to understand if companies were aware of the
most significant ESG risks to their business types.
This is the first time the Manager has issued the ESG survey.
The findings have been extremely insightful and will inform the
actions the Manager takes to better manage ESG risks and
opportunities across the portfolio over the next year. The Manager
will then issue the survey again in 2022 to assess improvements in
disclosure, understanding and action across the portfolio.
Results
Some of the core findings, how they compare with the Sustainable
Investment Team's best practice recommendations, and consequently
the actions the investment teams will take to address any material
areas of divergence are set out in the full Annual Report.
Stewardship Responsibilities
As an active investor, the Manager acts as a long-term steward
of the assets in which it invests. Active ownership
responsibilities include engagement and voting, which are used to
protect and create value. The Manager will almost always take a
board seat or become a board observer, which ensures sufficiently
frequent levels of communication with the management team.
The Manager has published its Engagement and Voting Policy on
its website, which sets out its approach and explains how
integrated these activities are to its business practices and
investment processes.
Engagement
The Manager's investment philosophy means that it is an actively
engaged shareholder. The Manager's assessments of management, b
oard and governance form a critical part of the investment case,
which necessitates that it works with companies on strategy,
M&A, remuneration and related matters, from the outset of the
holding period onwards. The Manager encourages an open and honest
dialogue with the companies as this is an essential part of
effective stewardship.
The Manager will meet face-to-face with the management team of a
publicly listed company at least twice a year, and more frequently
when it owns a material stake in a company. The Manager will
generally work more closely with the management teams of private
equity investments and meet on a more frequent basis. These
meetings form the basis for the ongoing monitoring of a company's
strategy, financial performance and ESG considerations.
Defining engagement objectives
The Manager will usually identify and agree strategic milestones
that it expects a company to deliver on over the holding period.
The Manager will typically identify three or four key strategic
milestones that are bespoke to the organisation and its business
development, aiming to keep the directors focused and ensure
continued progress.
Objectives may change over time depending on several factors,
including business priorities, market forces and stakeholder
considerations. Example of engagement objectives include:
-- Board composition
-- Improvements to governance arrangements
-- Product or geographic expansion or variance, including due to ESG related market forces
-- Staff retention and reduction of absence rates
-- Implementing compliance programmes with forthcoming ESG legislation
-- Improvements to reporting, including ESG factors
The identified objectives provide a framework which forms the
basis of the Manager's discussions with companies during regularly
scheduled engagements.
Voting
Voting is an important part of the Manager's investment strategy
and Gresham House is a signatory to the UK Stewardship Code and the
Principles of Responsible Investment ('PRI').
The Manager's voting decisions are based on the course of action
that will be in the best interest of the investee company and are
informed by various sources including; procedures, research,
engagement with the company, discussions with other stakeholders
and advisers, internal discussions and consultations, and other
relevant information.
For the twelve months to 30 September 2021, the Manager was
subject to votes on 2,211 issues. Of these, the Manager voted for
91.1 per cent of resolutions, against 3.3 per cent, abstained on
0.4 per cent and did not vote on 5.2 per cent.
In Q3 2021, the Manager voted on all 521 resolutions, voting for
on 93.9 per cent of occasions, against on 4.6 per cent and
abstaining on 1.5 per cent. Of the 24 votes against, nine were
because the resolutions conflicted with the Manager's house policy,
notably to vote against political donations, while the others were
on M&A and liquidation issues that went against the investment
teams' philosophy.
Voting decisions
The Manager does not have a set policy defining how voting
decisions should be made on specific items, but has set the
following guidelines:
1. Authority to allot shares - policy to vote against anything over 33 per cent.
2. Disapplication of pre-emption rights - policy to vote against anything over 10 per cent.
3. Authorise Company to purchase own shares - policy to vote against anything over 10 per cent.
4. Political donations - policy to vote against all political donations.
Proxy voting providers
The Manager does not use any proxy voting advisory services, but
will usually use proxy voting services to deliver voting decisions
to the companies it invests in.
Voting against management
If the Manager plans to vote against the company decision, it
will engage with the company in advance, explain the reasons for
voting against management and look for ways to avoid that if
possible. If a satisfactory outcome is not reached through this
active dialogue with the company, the Manager will typically tell
the company in advance of its intention to abstain or vote against
management and clarify the reasons grounding such intention.
Other matters
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, 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 policy is not to invest in any of the following
areas: human cloning; arms/munitions or adult content.
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.
VCT status
Compliance with the required VCT rules and regulations is
considered when all investment decisions are made. Internally, this
is monitored on a continuous basis and it is also reviewed by
PricewaterhouseCooper LLP ("PwC") every six months to ensure
ongoing compliance. PwC have been appointed by the Company to
advise on compliance with VCT requirements, including evaluation of
investment opportunities as well as appropriate and regular review
of the portfolio. Although PwC works closely with the Manager, they
report directly to the Board.
The principal tests are summarised below. Throughout the year
ended 30 September 2021 and at the date of this report, the Company
continued to meet these tests.
1) To ensure that the VCT's income in the period has been
derived wholly or mainly (70 per cent plus) from shares or
securities;
2) To ensure that the VCT has not retained more than 15 per cent
of its income from shares and securities;
3) To ensure that the VCT has not made a prohibited payment to
shareholders derived from an issue of shares since 6 April
2014;
4) To ensure that at least 80 per cent by value of the VCT's
investments has been represented throughout the period by shares or
securities comprised in qualifying holdings of the VCT;
5) To ensure that at least 70 per cent by value of the VCT's
qualifying holdings has been represented throughout the period by
holdings of eligible shares;
6) To ensure that no investment in any company has represented
more than 15 per cent by value of the VCT's investments at the time
of investment;
7) To ensure that the VCT's ordinary capital has throughout the
period been listed on a regulated European market;
8) To ensure that the VCT has not made an investment in a
company which causes it to receive more than the permitted
investment from State Aid sources;
9) To ensure that since 17 November 2015, the VCT has not made
an investment in a company which exceeds the maximum permitted age
requirement;
10) To ensure that since 17 November 2015, funds invested by the
VCT in another company have not been used to make a prohibited
acquisition; and
11) To ensure that since 6 April 2016, the VCT has not made a
prohibited non-qualifying investment.
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.
Continuing Appointment of the Manager
The Board keeps the performance of the Manager under continual
review. The Management Engagement and Remuneration Committee,
comprising all Directors, conducts an annual review of the
Manager's performance and makes a recommendation to the Board about
its continuing appointment.
It is considered that the Manager has executed the Company's
investment strategy according to the Board's expectations.
Accordingly, the Directors believe that the continuing appointment
of Gresham House Asset Management Limited as the Manager of the
Company, on the terms agreed, is in the best interests of the
Company and its shareholders as a whole.
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 2021 was 2.7 per cent.
The management agreement may be terminated at any date by either
party giving 12 months' notice of termination and, if terminated,
the Manager is only entitled to the management fees paid to it and
any interest due on unpaid fees.
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.
Nil performance fee is payable for the year to 30 September 2021
(2020: GBPnil).
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 are fewer 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
GBP250,000.
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, 94 executives have
invested a total of GBP1.1 million in 79 companies. At 30 September
2021, 48 of these investments have been realised generating
proceeds of GBP375 million for the Baronsmead VCTs and GBP20
million for the VCT incentive scheme. For Baronsmead Second Venture
Trust the average money multiple on these 45 realisations was 1.8x
cost. Had the VCT incentive shares been held instead by the
Baronsmead VCTs, the extra return to shareholders would have been
the equivalent of 3.6p a share over 17 years (based on the current
number of shares in issue). The Board considers this cost to retain
quality people to be in the best interests of shareholders.
Advisory and Directors' fees
During the year, Gresham House Asset Management Limited received
GBP254,000 (2020: GBP204,000) advisory fees, GBP375,000 (2020:
GBP360,000) directors' fees for services provided to companies in
the investment portfolio and incurred abort costs of GBP8,000
(2020: GBP11,000) with respect to investments attributable to the
Company.
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 Association of Investment
Companies Code of Corporate Governance ("AIC Code"), the Directors
have assessed the prospects of the Company over the three-year
period to 30 September 2024.
This period is used by the Board during the strategic planning
process and is considered reasonable for a business of our nature
and size. The three-year period is considered the most appropriate
given the forecasts that the Board require from the Manager and the
estimated timeline for finding, assessing and completing
investments.
In making this three-year assessment, the Board has taken the
following factors into consideration:
-- The nature of the Company's portfolio
-- The Company's investment strategy
-- The potential impact of the principal risks and uncertainties
-- Share buy-backs
-- The liquidity of the Company's portfolio
-- Market falls and gains, with particular reference to the COVID-19 pandemic
-- Maintaining VCT approval status
The Board has carried out a robust assessment of the above
factors, as they have the potential to threaten the Company's
business model, future performance, solvency, or liquidity. This
review has considered the principal risks as outlined above.
The Board also paid particular attention to the impact of the
COVID-19 pandemic on the economic, regulatory and political
environment as well as its direct impact upon the Company. The
Board has also evaluated the ability of third party suppliers to
continue to deliver services to the Company.
The Board has considered the ability of the Company to raise
funds and deploy capital. Its assessment took account of the
availability and likely effectiveness of the mitigating actions
that could be taken to avoid or reduce the impact of the underlying
risks, and the large listed portfolio that could be liquidated if
necessary.
The Company's portfolio currently includes a large position in
cash or liquid money market funds. Over the last five years, cash
and liquid money market funds have averaged c.16 per cent of the
NAV and reflected 16 per cent of the 30 September 2021 NAV. Cash
balances can fluctuate over time due to changes in market
conditions, but positive cash levels are expected to be maintained
over the period. The Company has no debt, and it is expected that
the Company will remain ungeared for the foreseeable future.
The Directors have also considered the Company's income and
expenditure projections and find these to be realistic and
sensible. The Directors have assessed the Company's ability to
cover its annual running costs under several liquidity scenarios in
which the value of liquid assets (included AIM-traded investments
and OEICs) has been subject to sensitivity analysis. The Directors
noted that under none of these scenarios was the Company unable to
cover its costs.
Based on the Company's processes for monitoring costs, share
price discount, the Manager's compliance with the investment
objective, policies and business model, asset allocation and the
portfolio risk profile, the Directors have concluded that there is
a reasonable expectation that the Company will be able to continue
in operation and meet its liabilities as they fall due over the
three year period to 30 September 2024.
Returns to Investors
Dividend policy
The Board will decide the annual dividends each year and the
level of the dividends will depend on investment performance, the
level of realised returns and available liquidity. The dividend
policy guidelines below are not binding and the Board retains the
ability to pay higher or lower dividends relevant to prevailing
circumstances. However, the Board confirms the following two
guidelines that shape its dividend policy:
-- 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 the Company
in ways that best suit their personal investment and tax planning
and in a way that treats all shareholders equally.
-- Fund raising | From time to time the Company seeks to raise
additional funds by issuing new shares at a premium to the latest
published net asset value to account for costs. The Company
currently has an Offer open to raise up to GBP25 million, with an
additional GBP12.5 million overallotment facility available, as
required.
-- 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
2,100,000 shares were bought in this way during the year to 30
September 2021.
-- 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 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 1,722,000 shares were bought by
investors in the Company's existing shares in the year to 30
September 2021.
Directors' duties
Overview
Section 172 of the Companies Act 2006 (the "Act") requires the
Directors to act in good faith and in a way that is most likely to
promote the success of the Company for the benefit of its
shareholders.
Directors must consider the long-term consequences of any
decision they make. They must also consider the interests of the
various stakeholders of the Company, the impact the Company has on
the environment and community, and operate in a manner which
maintains their reputation for having high standards of business
conduct and fair treatment between shareholders.
Fulfilling this duty naturally supports the Company in its
investment objective of achieving long-term investment returns for
private investors and helps ensure that all decisions are made in a
responsible and sustainable way. In accordance with the
requirements of the Companies (Miscellaneous Reporting) Regulations
2018, and the AIC Code, the information below explains how the
Directors have individually and collectively discharged their
duties under section 172.
To ensure they are aware of and understand their duties,
Directors are provided with a detailed induction outlining their
legal and regulatory duties as a Director of a UK public limited
company upon appointment. They also receive regular regulatory
updates and training as appropriate. A Company Secretarial Report
is included within the papers of every Board meeting, which reminds
the Directors of their duties and emphasises the importance of
stakeholder consideration during decision making. Directors also
receive technical updates from the Company's advisers and from the
Manager on a regular basis.
The Directors have access to the advice and services of the
Company Secretary and a range of other reputable service providers
and, when deemed necessary, the Directors may seek independent
professional advice in the furtherance of their duties, at the
Company's expense.
The Company has a Schedule of Matters Reserved for the Board
which describe the Board's duties and responsibilities. Terms of
Reference of the Board's Committees are in place, which outline the
duties of those Committees that are delegated from the Board,
including their statutory and regulatory responsibilities. Both the
Schedule of Matters Reserved for the Board and the Committees'
Terms of Reference are reviewed on at least an annual basis.
The Audit & Risk Committee has responsibility for the
ongoing review of the Company's risk management and internal
controls. To the extent that they are applicable, risks related to
the matters set out in Section 172 are included within the
Company's Risk Register and are subject to regular review and
monitoring.
Decision making
The importance of stakeholder considerations, in the context of
decision making, is taken into account at every Board meeting. All
discussions involve careful consideration of the longer-term
consequences of any decisions and their implications for
stakeholders. Further information on the role of the Board in
safeguarding stakeholder interests and monitoring ongoing
investment activity can be found below.
Stakeholder engagement
Following a comprehensive review by the Board, which regularly
keeps stakeholder engagement mechanisms under review, it was agreed
that, as the Company is an externally managed Venture Capital Trust
and does not have any employees or customers, the Company's key
stakeholders are:
-- The Company's shareholders
-- The Manager
-- The portfolio of investee companies, and the wider communities in which they operate
-- HMRC and the Company's governing bodies, including the FCA
-- The Association of Investment Companies ("AIC")
-- A range of reputable external service providers
Details of how the Board seeks to understand the needs and
priorities of these stakeholders and how these are taken into
consideration during its discussions as part of its
decision-making, are described in the table below:
Stakeholder Group Importance Board Engagement
Shareholders Continued shareholder The Board is committed to maintaining open channels of
support is critical communication
to the sustainability with shareholders and during the year has developed various
of the Company and meaningful ways of engaging with shareholders to understand
delivery of the their views. These include:
long-term
strategy of the -- Annual General Meeting ("AGM") - The Company welcomes
business. and encourages attendance and participation from shareholders
at the AGM and values any feedback and questions it may
receive. The Company successfully held its first virtual
AGM on 16 February 2021. The AGM was held virtually due
to government restrictions on public gatherings imposed
at that time. Shareholders were invited to raise questions
in advance of, during and after the AGM and the Company
was delighted to answer those questions received. The Chairman
presented on the Company's outlook for 2021 and a joint
investment management presentation to shareholders of the
Company and Baronsmead Venture Trust Plc was held on the
same day.
The Company's forthcoming AGM will take place on 16 February
2022. The Company intends to hold this AGM in person, with
shareholders who are unable to attend in person given the
option to watch the AGM live. It must be noted that those
who participate virtually will not be able to vote during
the course of the AGM and are asked to submit their votes
by proxy in advance of the AGM.
Further information regarding the 2022 AGM can be found
in the Chairman's Statement above and within the Notice
of AGM which is being sent to shareholders separately from
this Annual Report.
-- Publications - The Company's Annual and Half-Yearly
Reports are made available on the Company's website
(www.baronsmeadvcts.co.uk)
and sent to shareholders. These publications provide
shareholders
with information regarding the Company's business model,
strategy and investment portfolio and provide a clear
understanding
of the Company's financial position. This is supplemented
by the monthly publication of the NAV on the Company's website
and quarterly factsheets. Feedback and questions received
by the Company from shareholders enables the Company to
improve its reporting, which in turn helps to deliver
transparent
and understandable updates.
-- Shareholder communication and shareholder concerns -
The Manager communicates with shareholders periodically
and shareholders are welcome to raise any comments, issues
or concerns with the Board at any time. Shareholders are
invited to do so by writing to the Chairman at the registered
office. Malcolm Groat, as Senior Independent Director, is
also available to shareholders if they have concerns that
contact through the normal channel of the Chairman has failed
to resolve or for which such contact is inappropriate.
------------------------ -----------------------------------------------------------------
The Manager The Manager's The Board invites the Manager to attend Valuation Forums,
performance is critical Board meetings and Committee meetings to update Directors
for the Company to on the performance of the portfolio and execution of the
successfully deliver investment strategy. The Board holds detailed discussions
its investment strategy with the Manager on all key strategic and operational
and meet its objective topics
to achieve long-term on an ongoing basis. In addition, the Chairman regularly
investment returns meets with the Manager to ensure a close dialogue is
for private investors. maintained.
In line with the Company's culture, the Board recognises
the importance of working together with the Manager in such
a way that:
* encourages open, honest, and collaborative
discussions at all levels, allowing time and space
for original and innovative thinking;
* draws on Board members' individual experience and
knowledge to support and challenge the Manager in its
monitoring of and engagement with portfolio investee
companies;
* ensures that the impact on the Manager is fully
considered and understood before any business
decision is made; and
* ensures that any potential conflicts of interest are
avoided or managed effectively.
------------------------ -----------------------------------------------------------------
The portfolio of The Company invests Day-to-day engagement with the portfolio of investee companies
investee in growth businesses, is undertaken by the Manager, so a transparent and objective
companies whether unquoted or relationship between the Board and the Manager is vital.
traded on AIM, which For unquoted and larger AIM holdings the Manager is an
are primarily based influential
in the UK. Investments and engaged shareholder (on behalf of the Company) and Manager
are made selectively representatives often join the boards of these companies.
across a range of
sectors At each scheduled Valuation Forum, the Board receives detailed
to meet the Company's updates from the Manager covering the portfolio construction
investment objectives and performance, progress and trading within the underlying
and in accordance with portfolio companies and valuation recommendations. The Board
VCT legislation. is also provided with investment pipeline reports, covering
both new deals and potential follow-on investments at Board
meetings.
------------------------ -----------------------------------------------------------------
External service To function as a VCT The Board maintains regular contact with its external providers
providers with a premium listing and receives reports from them at Board and Committee meetings,
on the London Stock as well as outside of the regular meeting cycle. Their advice,
Exchange, the Company as well as their needs and views are routinely considered.
relies on a diverse During the period, the Management Engagement and Remuneration
range of highly Committee formally assessed the external service providers'
regarded performance, fees and continuing appointment to ensure that
advisers for support they continue to function at an acceptable level and are
in meeting all relevant appropriately remunerated to deliver the expected level
obligations. of service. The Audit & Risk Committee reviews and evaluates
the control environments in place at each service provider
as appropriate. In particular, during the COVID-19 lockdown
environment the Manager and Audit & Risk Committee received
confirmation that all service providers had effectively
implemented their Business Continuity Plans and were able
to work remotely, with no impact to the services provided
to the Company or to the internal controls in place at the
providers.
------------------------ -----------------------------------------------------------------
HMRC and governing The Company must comply The Board regularly considers how it meets regulatory and
bodies with HMRC VCT rules statutory obligations and follows voluntary and best-practice
and must comply or guidance, including how any governance decisions it makes
explain its adherence impacts the Company's stakeholders, both in the shorter
to the AIC Code. HMRC and in the longer-term. In particular, the Audit & Risk
and the AIC have a Committee receives confirmation from its VCT Status Adviser
legitimate interest regarding compliance with HMRC's VCT rules and at every
in how the Company Board meeting the Board is presented with a Company Secretarial
operates in the market Report outlining the latest governance updates to keep the
and treats its Board abreast of any relevant regulatory changes. The Company
shareholders. Secretary reviews the Company's ongoing compliance with
the AIC Code, on at least an annual basis, which informs
the Company's corporate governance disclosures in the Annual
Report. In addition, the Board receives reports from the
Manager and Auditor on their respective regulatory compliance
and any inspections or reviews that are commissioned by
regulatory bodies. The Company ensures it meets all required
HMRC obligations and payments promptly and as they fall
due.
------------------------ -----------------------------------------------------------------
The mechanisms for engaging with stakeholders are kept under
review by the Directors and discussed at Board meetings to ensure
they remain effective. Examples of the Board's principal decisions
during the year, and how the Board fulfilled its duties under
Section 172, and the related engagement activities, are set out
below.
Principal Decision Long-Term impact Stakeholders and Engagement
Consideration Establishing During the reporting period, the Board
of the Company's and maintaining considered the Company's culture,
culture, purpose a healthy corporate purpose and values.
and values culture within
the Company will The Company seeks to invest in innovative,
aid delivery high growth quoted and unquoted companies,
of its long-term providing capital and expertise at
strategy. a critical stage of their development.
The Company believes that the successful
development of these companies will
be crucial to the advancement of the
UK economy. The Manager has an extensive
entrepreneurial network and specialist
skills which are utilised both to
source new investment opportunities
as well as to support the portfolio
company management teams to deliver
their growth plans. The investment
strategy is based on backing the highest
potential companies operating in sectors
and markets which are benefiting from
long-term structural growth trends,
whilst recognising the risk management
benefits of diversification in portfolio
construction.
The Company has several policies in
place to maintain a culture of good
governance including those relating
to Directors' conflicts of interest
and Directors' dealings in the Company's
shares. The Board assesses and monitors
compliance with these policies as
well as the general culture of the
Board during the annual Board evaluation
process which is undertaken by each
Director. This is a formal internal
process coordinated by the Chairman,
given the small size of the Board.
------------------------ ------------------------------------------------------------
Continued focus The Board recognises The Board has continued its focus
on the Manager's that sound ESG on responsible business practices
ESG impact policies, when and the impact of ESG matters. The
embedded with Board notes that the Manager has added
appropriate governance to resources in this area and has
and responsible significantly developed its ESG policy,
business practices, its ESG investment tool and processes
help generate in the past 12 months. The Board has
long-term financial received a detailed presentation from
performance and the Manager's sustainable investment
contribute to director on its responsible business
the wider community. practices and the methods used to
evaluate ESG risks as part of its
investment processes.
The Board acknowledges and supports
the increased focus by the Manager
on ensuring new and existing investee
companies are adopting sound ESG policies
and will continue to monitor the Manager's
progress.
------------------------ ------------------------------------------------------------
Board succession Effective succession The Board has approved and adopted
planning planning, leading a Tenure and Reappointment Policy
to the refreshment (the "Policy"). In accordance with
of the Board the Policy, the Board will seek to
and its diversity recruit a Director approximately every
is necessary four years, with no Director expected
for the long-term to serve on the Board for longer than
success of the nine years.
Company.
Succession planning was a significant
focus for the Board during the year
ended 30 September 2021 and further
detail regarding the changes to the
Board during the financial year can
be found in the Directors' Report
in the full Annual Report. Details
of the composition of the Board can
also be found in the corporate governance
statement in the full Annual Report.
------------------------ ------------------------------------------------------------
Approval of Providing shareholders In deciding to launch a fundraising
fundraising and potential during the reporting period, the Board
new investors considered:
the opportunity
to subscribe * the ability to adhere to the Company's dividend
for shares in policy;
BSVT, which in
turn provides
opportunities * the effect on the NAV and the ability of the Company
for Company growth to be able to meet HMRC's VCT investment rules and
and increased timelines;
investor engagement.
* the new investment pipeline;
* the costs involved in issuing a prospectus and of
fundraising; and
* the advantages and disadvantages of a joint
prospectus across the two Baronsmead VCTs which
Gresham House advises.
------------------------ ------------------------------------------------------------
The Strategic Report has been approved by the Board of
Directors.
On behalf of the Board
Sarah Fromson
Chairman
6 December 2021
Extracts from the Directors' Report
Shares and Shareholders
Share capital
Pursuant to the prospectus published by the Company on 16
September 2020 in conjunction with Baronsmead Venture Trust plc in
relation to an offer for subscription to each raise up to GBP20
million (before costs) with an over-allotment facility to each
raise up to a further GBP17.5 million, the Company issued a total
of 40,593,158 ordinary shares in the year ended 30 September 2021
by way of five allotments, raising approximately GBP32.4 million.
Details of these allotments are as set out below:
-- On 10 November 2020, the Company issued 16,956,777 ordinary
shares under the first allotment at an issue price of 77.90 pence
per share. The shares were admitted to trading on 16 November
2020.
-- On 17 December 2020, the Company issued 4,045,996 ordinary
shares under the second allotment at an issue price of 80.90 pence
per share. The shares were admitted to trading on 22 December
2020.
-- On 29 January 2021, the Company issued 7,731,966 ordinary
shares under the third allotment at an issue price of 84.40 pence
per share. The shares were admitted to trading on 4 February
2021.
-- On 26 February 2021, the Company issued under the fourth
allotment 3,812,670 ordinary shares at an issue price of 82.20
pence and were admitted to trading on 4 March 2021.
-- On 18 March 2021, the Company issued 8,045,749 ordinary
shares under the fifth allotment at an issue price of 84.90 pence
per share. The shares were admitted to trading on 23 March
2021.
At the AGM held on 16 February 2021, the Company was granted
authority to purchase up to 14.99 per cent of the Company's
ordinary share capital in issue at that date on which the Notice of
AGM was published, amounting to 40,031,296 ordinary shares. During
the year, the Company bought back a total of 5,685,643 ordinary
shares to be held in Treasury, representing 2.1 per cent of the
issued share capital as at 30 September 2021, with an aggregate
nominal value of GBP568,564. The total amount paid for these shares
was GBP4,535,516. Since the 30 September 2021, no shares have been
bought back by the Company. The Company has remaining authority to
buy back 36,441,439 shares under the resolution approved at the AGM
in 2021.
During the year, the Company sold 815,000 ordinary shares from
Treasury. The total amount received by the Company for these shares
was GBP650,692. Shares will not be sold out of Treasury at a
discount wider than the discount at which the shares were initially
bought back by the Company.
As at the date of this report the Company's issued share capital
was as follows:
% of
Shares
Share Total in issue Nominal Value
In issue 312,059,812 100.00 GBP31,205,981.20
============ ========= =================
Held in Treasury 29,085,727 9.32 GBP2,908,572.70
============ ========= =================
In circulation 282,974,085 90.68 GBP28,297,408.50
============ ========= =================
The total voting rights as at 30 September 2021 were 282,974,085
and there have been no changes to this figure between 30 September
2021 and the date of this report.
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 and
Financial Statements and to a final distribution upon the winding
up of the Company.
There are no restrictions on voting rights, no securities carry
special rights and the Company is not aware of any agreement
between holders of securities that result in restrictions on the
transfer of securities or on voting rights. There are no agreements
to which the Company is party that may affect its control following
a takeover bid.
In addition to the powers provided to the Directors under UK
company law and the Company's Articles of Association, at each AGM
the shareholders are asked to authorise certain powers in relation
to the issuing and purchasing of the Company's own shares. Details
of the powers granted at the AGM held in 2021, all of which remain
valid, can be found in the previous Notice of AGM.
The Company is not, and has not been throughout the year, aware
of any beneficial interests exceeding 3 per cent of the total
voting rights.
Dividends
The Company has paid or declared the following dividends for the
year to 30 September 2021:
Dividends GBP'000
=======
Interim dividend of 3.0p per ordinary share paid on 10
September 2021 8,496
======================================================== =======
Final dividend of 3.5p per ordinary share to be paid
on 4 March 2022* 9,904
======================================================== =======
Total dividends paid for the year 18,400
======================================================== =======
* Calculated on shares in circulation as at 30 September
2021.
Subject to shareholder approval at the AGM on 16 February 2022,
a final dividend of 3.5p per share will be paid on 4 March 2022 to
shareholders on the register at 3 February 2022.
Annual General Meeting
The AGM will be held on 16 February 2022. A separate notice
convening the Annual General Meeting will be posted to shareholders
and will be separate to the Annual Report. The Notice will include
an explanation of the items to be considered at the Annual General
Meeting and will be uploaded to the Company's website in due
course.
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.
The Directors acknowledge that the adverse impact caused by the
COVID-19 outbreak globally is still apparent. The Board
nevertheless considers the Company to be well placed to continue to
operate for at least twelve months from the date of this report, as
the Company has sufficient liquidity to pay its liabilities as and
when they fall due and also to invest in new opportunities as they
arise.
The Directors have considered the liquidity of the Company and
its ability to meet obligations as they fall due for a period of at
least 12 months from the date that these financial statements are
approved. As at 30 September 2021, the Company held cash balances
and investments in readily realisable securities with a value of
GBP38.7 million, representing 15.6 per cent of the Company's
NAV.
The Company has no debt, and it is expected that the Company
will remain ungeared for the foreseeable future. The Directors have
assessed the Company's ability to cover its annual running costs
under several liquidity scenarios in which the value of liquid
assets (including AIM-traded investments and OEICs) has been
subject to sensitivity analysis. The Directors noted that under
none of these scenarios was the Company unable to cover its
costs.
The Company's forecasts and cash flow projections, taking into
account current economic environment and other, potential changes
in performance, show that the Company has sufficient funds to meet
both its contracted expenditure and its discretionary cash outflows
in the form of the share buyback programme and dividend policy.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
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 ensuring the Annual Report and
the financial statements are made available on a website. Financial
statements are published on the Company's website in accordance
with legislation in the United Kingdom governing the preparation
and dissemination of financial statements, which may vary from
legislation in other jurisdictions. The maintenance and integrity
of the Company's website is the responsibility of the Directors.
The Directors' responsibility also extends to the ongoing integrity
of the financial statements contained therein.
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 Annual Report includes a fair and balanced 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:
Sarah Fromson
Chairman
6 December 2021
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the
Company's statutory accounts for the periods ended 30 September
2020 and 2021 but is derived from those accounts. Statutory
accounts for 2020 have been delivered to the Registrar of
Companies, and those for 2021 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 2021
Year ended Year ended
30 September 2021 30 September 2020
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ------- -------- ------------- -------- -------- ------------- --------
Gains on investments 2.3 - 59,071 59,071 - 8,680 8,680
Income 2.5 3,821 - 3,821 4,008 - 4,008
Investment management
fee 2.6 (1,424) (4,272) (5,696) (1,078) (3,235) (4,313)
Other expenses 2.6 (665) - (665) (674) - (674)
----------------------------- ------- -------- ------------- -------- -------- ------------- --------
Profit before taxation 1,732 54,799 56,531 2,256 5,445 7,701
Taxation 2.9 (108) 108 - (275) 275 -
----------------------------- ------- -------- ------------- -------- -------- ------------- --------
Profit for the year,
being total comprehensive
income for the year 1,624 54,907 56,531 1,981 5,720 7,701
----------------------------- ------- -------- ------------- -------- -------- ------------- --------
Return per ordinary
share:
Basic and diluted 2.2 0.59p 19.96p 20.55p 0.82p 2.36p 3.18p
----------------------------- ------- -------- ------------- -------- -------- ------------- --------
All items in the above statement derive from continuing
operations.
There are no recognised gains and losses other than those
disclosed in the Income Statement.
The revenue column of the Income Statement includes all income
and expenses. The capital column accounts for the realised and
unrealised profit or loss on investments and the proportion of the
management fee charged to capital.
The total column of this statement is the Statement of Total
Comprehensive Income of the Company prepared in accordance with
Financial Reporting Standards or FRS 102. The supplementary revenue
return and capital return columns are prepared in accordance with
the Statement of Recommended Practice issued by the Association of
Investment Companies ("AIC SORP").
The notes below form part of these financial statements.
Statement of changes in equity
For the year ended 30 September 2021
Non-distributable reserves Distributable Reserves
------------------------ -----
Called-up Share Revaluation Capital Revenue
share capital premium reserve reserve reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ----- -------------- -------- ----------- -------- -------- ------------
At 1 October 2020 27,146 46,775 30,890 75,290 2,216 182,317
Profit after taxation - - 46,591 8,316 1,624 56,531
Net proceeds of share
issues, share buybacks
& sale of shares
from treasury 4,060 27,456 - (3,908) - 27,608
Dividends paid 2.4 - - - (16,000) (2,082) (18,082)
------------------------ ----- -------------- -------- ----------- -------- -------- ------------
At 30 September 2021 31,206 74,231 77,481 63,698 1,758 248,374
------------------------------- -------------- -------- ----------- -------- -------- ------------
For the year ended 30 September 2020
Non-distributable
reserves Distributable Reserves
------------------------ -----
Called-up Share Revaluation Capital Revenue
share capital premium reserve reserve reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ----- -------------- -------- ----------- -------- ----------- -----------
At 1 October 2019 24,802 31,191 25,492 92,316 1,575 175,376
Profit after taxation - - 5,398 322 1,981 7,701
Net proceeds of share
issues, share buybacks
& sale of shares
from treasury 2,344 15,584 - (2,782) - 15,146
Other costs charged
to capital - - - (1) - (1)
Dividends paid 2.4 - - - (14,565) (1,340) (15,905)
------------------------ ----- -------------- -------- ----------- -------- ----------- -----------
At 30 September 2020 27,146 46,775 30,890 75,290 2,216 182,317
------------------------ ----- -------------- -------- ----------- -------- ----------- -----------
The notes below form part of these financial statements.
Balance sheet
As at 30 September 2021
Company number: 04115341
As at As at
30 September 30 September
2021 2020
Notes GBP'000 GBP'000
--------------------------------------- ------ -------------- --------------
Fixed assets
Investments 2.3 238,100 179,932
Current assets
Debtors 2.7 109 571
Cash at bank 12,312 3,108
--------------------------------------- ------ -------------- --------------
12,421 3,679
Creditors (amounts falling due within
one year) 2.8 (2,147) (1,294)
--------------------------------------- ------ -------------- --------------
Net current assets 10,274 2,385
--------------------------------------- ------ -------------- --------------
Net assets 248,374 182,317
--------------------------------------- ------ -------------- --------------
Capital and reserves
Called-up share capital 3.1 31,206 27,146
Share premium 3.2 74,231 46,775
Capital reserve 3.2 63,698 75,290
Revaluation reserve 3.2 77,481 30,890
Revenue reserve 3.2 1,758 2,216
--------------------------------------- ------ -------------- --------------
Equity shareholders' funds 2.1 248,374 182,317
--------------------------------------- ------ -------------- --------------
Net asset value per share
- Basic and diluted 2.1 87.77p 73.74p
--------------------------------------- ------ -------------- --------------
The notes below form part of these financial statements.
The financial statements were approved, and authorised for
issue, by the board of Directors of Baronsmead Second Venture Trust
plc on 6 December 2021 and were signed on its behalf by:
Sarah Fromson
Chairman
Statement of Cash Flows
For the year ended 30 September 2021
Year ended Year ended
30 September 30 September
2021 2020
GBP'000 GBP'000
---------------------------------------------------- ------------- -------------
Cash flows from operating activities
Investment income received 4,111 3,603
Investment management fees paid (5,281) (4,269)
Other cash payments (680) (673)
---------------------------------------------------- ------------- -------------
Net cash outflow from operating activities (1,850) (1,339)
---------------------------------------------------- ------------- -------------
Cash flows from investing activities
Purchases of investments (49,314) (36,999)
Disposals of investments 50,397 30,976
---------------------------------------------------- ------------- -------------
Net cash inflow/(outflow) from investing activities 1,083 (6,023)
Cash flows from financing activities
Gross proceeds of share issues 32,974 18,435
Gross proceeds from sale of shares from treasury 651 657
Gross costs of share buybacks (4,092) (3,186)
Costs of share issues (1,459) (507)
Costs of share buybacks (21) (15)
Equity dividends paid (18,082) (15,905)
Costs charged to capital - (1)
---------------------------------------------------- ------------- -------------
Net cash inflow from financing activities 9,971 (522)
---------------------------------------------------- ------------- -------------
Increase/(decrease) in cash 9,204 (7,884)
---------------------------------------------------- ------------- -------------
Reconciliation of net cash flow to movement
in net cash
Increase/(decrease) in cash 9,204 (7,884)
Opening cash position 3,108 10,992
---------------------------------------------------- ------------- -------------
Closing cash at bank and on deposit 12,312 3,108
---------------------------------------------------- ------------- -------------
Reconciliation of profit before taxation to
net cash outflow from operating activities
Profit before taxation 56,531 7,701
Gains on investments (59,071) (8,680)
Income reinvested (179) -
Decrease/(increase) in debtors 462 (403)
Increase in creditors 407 43
---------------------------------------------------- ------------- -------------
Net cash outflow from operating activities (1,850) (1,339)
---------------------------------------------------- ------------- -------------
The notes below form part of these financial statements.
Notes to the Financial Statements
For the year ended 30 September 2021
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, February 2018, October 2019 and
April 2021 and on the assumption that the Company maintains VCT
status with HMRC.
The application of the Company's accounting policies requires judgement,
estimation and assumptions about the carrying amount of assets and
liabilities. These estimates and associated assumptions are based
on historical experience and other factors that are considered to
be relevant. Actual results may differ from these estimates.
After making the necessary enquiries, including those made during
the preparation of the viability statement in the Strategic Report,
the Directors believe that the Company will continue to be able
to meet its liabilities as and when they fall due for a period of
at least 12 months, therefore it is appropriate to apply the going
concern basis in preparing the financial statements. The Directors
acknowledge the significant adverse effect that the COVID-19 outbreak
has had globally, however the Directors consider the Company to
be well placed to continue to operate for at least 12 months from
the date of this report. The Company has no debt and has sufficient
liquidity to meet both its contracted expenditure and its discretionary
cash outflows, including to invest in new opportunities as they
arise. The Directors note that the Company's third-party suppliers
are not experiencing significant operational difficulties affecting
their respective services to the Company. The Directors have also
assessed the Company's ability to cover its annual running costs
under several liquidity scenarios in which the value of liquid assets
(including AIM-traded investments and OEICs) has been subject to
sensitivity analysis, taking into account the current economic environment
and other, plausibly possible changes in performance. It is therefore
appropriate to apply the going concern basis in preparing the financial
statements.
2. Investments, performance and shareholder returns
2.1 Net asset value per share
Number Net asset value per Net asset value
of ordinary shares share attributable attributable
========================== ========================== ==========================
30 September 30 September 30 September 30 September 30 September 30 September
2021 2020 2021 2020 2021 2020
number number pence pence GBP'000 GBP'000
================ ============ ============ ============ ============ ============ ============
Ordinary shares
(basic) 282,974,085 247,251,570 87.77 73.74 248,374 182,317
================ ============ ============ ============ ============ ============ ============
2.2 Return per share
Weighted average number Return per Net profit/(loss)
of ordinary shares ordinary share after taxation
========================== ========================== ==========================
30 September 30 September 30 September 30 September 30 September 30 September
2021 2020 2021 2020 2021 2020
number number pence pence GBP'000 GBP'000
Revenue 275,054,819 242,461,220 0.59 0.82 1,624 1,981
Capital 275,054,819 242,461,220 19.96 2.36 54,907 5,720
Total 20.55 3.18 56,531 7,701
======== ============ ============ ============ ============ ============ ============
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 Guidelines").
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.
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 3.3 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) Cost of recent investment
ii) Earnings multiple
iii) Offer less 10 per cent
The Earnings multiple approach involves more subjective inputs
than the Cost of recent investment and Offer approaches and
therefore presents a greater risk of over or under estimation.
The Cost of recent investment approach involves holding the
investment at the price set in the latest available funding
round.
The key assumptions for the Multiples approach are that the
selection of comparable companies on which to determine earnings
multiple (chosen on the basis of their business characteristics
and growth patterns) and using either historic or forecast revenues
(as considered most appropriate) provide a reasonable basis
for identifying relationships between enterprise value and growth
to apply in the determination of fair value. Other assumptions
include the appropriateness of the discount magnitude applied
for reduced liquidity and other qualitative factors. The assumption
of offer less 10 per cent is in line with our internal valuation
methodology.
Gains and losses arising from changes in the fair value of the
investments are included in the Income Statement for the year
as a capital item. Transaction costs on acquisition are included
within the initial recognition and the profit or loss on disposal
is calculated net of transaction costs on disposal.
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 As at 30 September
2021 2020
GBP'000 GBP'000
------------------------------- ------------------ ------------------
Level 1
Investments traded on AIM 102,394 71,528
Level 2
Investments traded on AIM - 2,553
Collective investment vehicles 75,701 59,367
Investments listed on LSE 34 42
Level 3
Unquoted investments 59,971 46,442
------------------------------- ------------------ ------------------
238,100 179,932
------------------------------- ------------------ ------------------
For the year ended 30 September 2021
Level 1 Level 2 Level 3
Traded on AIM Listed on LSE Traded on AIM Collective investment Unquoted Total
GBP'000 GBP'000 GBP'000 vehicles GBP'000 GBP'000 GBP'000
============================ ========
Opening book cost 54,095 3,429 6,513 45,418 39,587 149,042
Opening unrealised
appreciation/
(depreciation) 17,433 (3,387) (3,960) 13,949 6,855 30,890
---------------------------- ------------- ------------- ------------- --------------------- ---------- --------
Opening fair value 71,528 42 2,553 59,367 46,442 179,932
---------------------------- ------------- ------------- ------------- --------------------- ---------- --------
Movements in the year:
Transfers between levels 6,513 - (6,513) - - -
Purchases at cost 4,146 - - 32,439 12,908 49,493
Sale - proceeds (10,946) - - (29,453) (9,997) (50,396)
- realised
gains/(losses) on
sales 4,253 - - - (1,163) 3,090
Unrealised gains realised
during the year 5,003 - - - 4,387 9,390
Increase/(decrease) in
unrealised appreciation 21,897 (8) 3,960 13,348 7,394 46,591
---------------------------- ------------- ------------- ------------- --------------------- ---------- --------
Closing fair value 102,394 34 - 75,701 59,971 238,100
---------------------------- ------------- ------------- ------------- --------------------- ---------- --------
Closing book cost 63,064 3,429 - 48,404 45,722 160,619
Closing unrealised
appreciation/(depreciation) 39,330 (3,395) - 27,297 14,249 77,481
---------------------------- ------------- ------------- ------------- --------------------- ---------- --------
Closing fair value 102,394 34 - 75,701 59,971 238,100
---------------------------- ------------- ------------- ------------- --------------------- ---------- --------
Equity shares 102,394 34 - - 37,795 140,223
Preference shares - - - - 10,074 10,074
Loan notes - - - - 12,102 12,102
Collective investment
vehicles - - - 75,701 - 75,701
Closing fair value 102,394 34 - 75,701 59,971 238,100
---------------------------- ------------- --------------------- ---------- --------
For the year ended 30 September 2020
Level 1 Level 2 Level 3
========= ===============================
Collective
Traded Listed Traded investment
on AIM LSE on AIM vehicles Unquoted Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------- -------- -------- ----------- --------
Opening book cost 62,148 - 8,443 32,865 37,156 140,612
Opening unrealised appreciation/(depreciation) 1,659 - (694) 12,753 11,774 25,492
----------------------------------------------- --------- -------- -------- ----------- -------- --------
Opening fair value 63,807 - 7,749 45,618 48,930 166,104
----------------------------------------------- --------- -------- -------- ----------- -------- --------
Movements in the year:
Transfer between levels (2,274) 3,429 (1,930) - 775 -
Purchases at cost 2,847 - - 26,130 7,147 36,124
Sale - proceeds (13,759) - - (13,577) (3,640) (30,976)
Sale - realised gains/(losses) on sales 1,434 - - - (1,496) (62)
Unrealised gains realised during the year 3,699 - - - (355) 3,344
Increase/(decrease) in unrealised appreciation 15,744 (3,387) (3,266) 1,196 (4,919) 5,398
----------------------------------------------- --------- -------- -------- ----------- -------- --------
Closing fair value 71,528 42 2,553 59,367 46,442 179,932
----------------------------------------------- --------- -------- -------- ----------- -------- --------
Closing book cost 54,095 3,429 6,513 45,418 39,587 149,042
Closing unrealised appreciation/(depreciation) 17,433 (3,387) (3,960) 13,949 6,855 30,890
----------------------------------------------- --------- -------- -------- ----------- -------- --------
Closing fair value 71,528 42 2,553 59,367 46,442 179,932
----------------------------------------------- --------- -------- -------- ----------- -------- --------
Equity shares 71,528 42 2,553 - 27,452 101,575
Preference shares - - - - 3,217 3,217
Loan notes - - - - 15,773 12,102
Collective investment vehicles - - - 59,367 - 59,367
-------- -------- -----------
Closing fair value 71,528 42 2,553 59,367 46,442 179,932
----------------------------------------------- --------- -------- -------- ----------- -------- --------
The gains and losses included in the above table have all been
recognised in the Income Statement above.
The AIM-traded investments held in Level 2 as at 30 September
2020 have been transferred to Level 1 after recent trading activity
in the period.
The Company received GBP20.9 million (2020: GBP17.4 million)
from investments sold in the year, excluding liquidity funds
redeemed of GBP29.5 million (2020: GBP13.6 million). The book cost
of these investments when they were purchased was GBP8.5 million
(2020: GBP14.2 million). These investments have been revalued over
time and until they were sold any unrealised gains or losses were
included in the fair value of the investments.
2.4 Dividends
In accordance with FRS 102, dividends are recognised as a liability
in the period in which they are declared.
Year ended Year ended
30 September 2021 30 September 2020
--------------------------------
Revenue Capital Total Revenue Capital Total
--------------------------------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- ---------- ----------- ----------- ------- ------- -------
For the year ended 30 September
2021
Interim dividend of 3.0p
per ordinary
share paid on 10 September
2021 850 7,646 8,496 - - -
For the year ended 30 September
2020
Final dividend of 3.5p per
ordinary share paid on 4
March 2021 1,232 8,354 9,586 - - -
Interim dividend of 3.0p
per ordinary share paid
on 11 September 2020 - - - 247 7,158 7,405
For the year ended 30 September
2019
Final dividend of 3.5p per
ordinary share paid on 3
March 2020 - - - 1,093 7,407 8,500
2,082 16,000 18,082 1,340 14,565 15,905
-------------------------------- ---------- ----------- ----------- ------- ------- -------
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 GBPnil (2020: GBPnil) was received in the year ended
30 September 2021.
Income from fixed interest securities and deposit interest is
included on an effective interest rate basis.
Dividends on quoted shares are recognised as income when the related
investments are marked ex-dividend and where no dividend date
is quoted, when the Company's right to receive payment is established.
Year ended Year ended
30 September 2021 30 September 2020
======================== ================================== ==================================
Quoted Unquoted Quoted Unquoted
securities securities Total securities securities Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
======================== =========== =========== ======== =========== =========== ========
Income from investments
Dividend income 968 193 1,161 721 88 809
Interest income 1 2,659 2,660 62 3,137 3,199
Total income 969 2,852 3,821 783 3,225 4,008
------------------------ ----------- ----------- -------- ----------- ----------- --------
All investments have been included at fair value through profit
or loss on initial recognition, therefore all investment income
arises on investments at fair value through profit or loss.
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 Year ended
30 September 2021 30 September 2020
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment management
fee 1,424 4,272 5,696 1,078 3,235 4,313
Performance fee - - - - - -
---------------------- -------- -------- -------- -------- -------- --------
1,424 4,272 5,696 1,078 3,235 4,313
---------------------- -------- -------- -------- -------- -------- --------
The management agreement may be terminated by either party
giving 12 months notice of termination.
The Manager, Gresham House, receives a fee of 2.5 per cent per
annum of the net assets of the Company, calculated and payable on a
quarterly basis. The collective investment vehicles, UK Micro
Cap,Multi Cap and Small Cap are also managed by Gresham House.
Arrangements are in place to avoid the double charging of fees.
The Manager is entitled to a performance fee when the total
return on net proceeds of the ordinary shares exceeds 8 per cent
per annum (on a simple basis). The Manager is entitled to 10 per
cent of the excess. The amount of any performance fee which is paid
in respect of a calculation period shall be capped at 5 per cent of
the shareholders' funds at the end of the calculation period.
GBPNil performance fee is payable for the year ended 30 September
2021 (2020: GBPnil).
Other expenses
Year ended Year ended
30 September 30 September
2021 2020
GBP'000 GBP'000
Directors' fees 122 134
Secretarial and accounting fees paid to the
Manager 143 175
Remuneration of the auditors and their associates:
- current auditors 48 -
- previous auditors 30 58
Other 322 307
665 674
=================================================== ============= =============
Information on Directors' remuneration is given in the
Directors' emoluments table in the full Annual Report. During the
year there was no remuneration due to the auditors for non-audit
services (2020: GBPnil).
2.7 Debtors
As at As at
30 September 30 September
2021 2020
GBP'000 GBP'000
Prepayments and accrued income 109 571
109 571
=============================== ============= =============
2.8 Creditors (amounts falling due within one year)
As at As at
30 September 30 September
2021 2020
GBP'000 GBP'000
Management, secretarial and accounting fees
due 1,598 1,188
Amounts due to brokers 444 -
Other creditors 105 106
2,147 1,294
============================================ ============= =============
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 charge/(credit) to the profit before
taxation is shown below:
Year ended Year ended
30 September 2021 30 September 2020
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Profit on ordinary
activities before taxation 1,732 54,799 56,531 2,256 5,445 7,701
---------------------------- -------- -------- -------- -------- -------- --------
Corporation tax at
19.0 per cent
(2020: 19.0 per cent) 329 10,412 10,741 429 1,035 1,464
Effect of:
Non-taxable gains - (11,223) (11,223) - (1,649) (1,649)
Non-taxable dividend
income (221) - (211) (154) - (154)
Losses carried forward - 703 703 - 339 339
============================ ======== ======== ======== ======== ======== ========
Tax charge/(credit)
for the year 108 (108) - 275 (275) -
============================ ======== ======== ======== ======== ======== ========
At 30 September 2021 the Company had unrealised losses of
GBP18,894,527 (2020: GBP15,321,306). A deferred tax asset of
GBP3,589,960 (2020: GBP2,911,048) has not been recognised because
the Company is not expected to generate taxable income in a future
year in excess of the deductible expenses of that future year.
Accordingly, the Company is unlikely to be able to reduce future
tax liabilities through the use of existing surplus expenses. Due
to the Company's status as a VCT, and the intention to continue
meeting the conditions required to obtain approval in the
foreseeable future, the Company has not provided deferred tax on
any capital gains and losses arising on the revaluation or disposal
of investments.
3. Other Required Disclosures
3.1 Called-up share Capital
Allotted, called-up and fully paid:
For the year ended 30 September 2021
Ordinary shares GBP'000
======================================================== =======
271,466,654 ordinary shares of 10p each listed at
30 September 2020 27,146
40,593,158 ordinary shares of 10p each issued during
the year 4,060
312,059,812 ordinary shares of 10p each listed at
30 September 2021 31,206
-------------------------------------------------------- -------
24,215,084 ordinary shares of 10p each held in treasury
at 30 September 2020 (2,421)
5,685,643 ordinary shares of 10p each repurchased
during the year and held in treasury (569)
815,000 ordinary shares of 10p each sold from treasury
during the year 81
-------------------------------------------------------- -------
29,085,727 ordinary shares of 10p each held in treasury
at 30 September 2021 (2,909)
-------------------------------------------------------- -------
282,974,085 ordinary shares of 10p each in circulation*
at 30 September 2021 28,297
-------------------------------------------------------- -------
For the year ended 30 September 2020
Ordinary shares GBP'000
======================================================== =======
248,020,328 ordinary shares of 10p each listed at
30 September 2019 24,802
23,446,326 ordinary shares of 10p each issued during
the year 2,344
271,466,654 ordinary shares of 10p each listed at
30 September 2020 27,146
-------------------------------------------------------- -------
20,393,155 ordinary shares of 10p each held in treasury
at 30 September 2019 (2,039)
4,421,929 ordinary shares of 10p each repurchased
during the year and held in treasury (442)
600,000 ordinary shares of 10p each sold from treasury
during the year 60
-------------------------------------------------------- -------
24,215,084 ordinary shares of 10p each held in treasury
at 30 September 2020 (2,421)
-------------------------------------------------------- -------
247,251,570 ordinary shares of 10p each in circulation*
at 30 September 2020 24,725
-------------------------------------------------------- -------
* Carrying one vote each.
The 40,593,158 ordinary shares were issued at an average price
of 81.23p (202: 78.525p).
During the year the Company bought back into treasury 5,685,643
ordinary shares, representing 2.30 (2020:1.78) per cent of the
ordinary shares in circulation at the beginning of the financial
year. During the year the Company also sold 815,000 (2020: 600,000)
shares from treasury.
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.
For the year ended 30 September 2021
Distributable reserves Non-distributable reserves
---------------------------------
Capital Revenue Share Revaluation
reserve reserve Total premium reserve* Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- -------- -------- -------- -------- ----------- --------
At 1 October 2020 75,290 2,216 77,506 46,775 30,890 77,665
Gross proceeds of
share issues - - - 28,915 - 28,915
Purchase of shares
for treasury (4,536) - (4,536) - - -
Sale of shares from
treasury 651 - 651 - - -
Expenses of share
issues and buybacks (23) - (23) (1,459) - (1,459)
Reallocation of prior
year unrealised gains/losses(#) 9,390 - 9,390 - (9,390) (9,390)
Realised gain on disposal
of investments(#) 3,090 - 3,090 - - -
Net increase in value
of investments(#) - - - - 55,981 55,981
Management fee charged
to capital(#) (4,272) - (4,272) - - -
Taxation relief from
capital expenses(#) 108 - 108 - - -
Profit after taxation(#) - 1,624 1,624 - - -
Dividends paid in
the year (16,000) (2,082) (18,082) - - -
-------- -------- -------- -------- ----------- --------
At 30 September 2021 63,698 1,758 65,456 74,231 77,481 151,712
-------- -------- -------- -------- ----------- --------
For the year ended 30 September 2020
Distributable reserves Non-distributable reserves
--------------------------
Capital Revenue Share Revaluation
reserve reserve Total premium reserve* Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- -------- -------- -------- -------- ----------- --------
At 1 October 2019 92,316 1,575 93,891 31,191 25,492 56,683
Gross proceeds of
share issues - - - 16,091 - 16,091
Purchase of shares
for treasury (3,186) - (3,186) - - -
Sale of shares from
treasury 420 - 420 - - -
Expenses of share
issues and buybacks (16) - (16) (507) - (507)
Other costs charged
to capital (1) - (1) - - -
Reallocation of prior
year unrealised gains(#) 3,344 - 3,344 - (3,344) (3,344)
Realised gain on disposal
of investments(#) (62) - (62) - - -
Net increase in value
of investments(#) - - - - 8,742 8,742
Management fee charged
to capital(#) (3,235) - (3,235) - - -
Taxation relief from
capital expenses(#) 275 - 275 - - -
Profit after taxation(#) - 1,624 1,624 - - -
Dividends paid in
the year (14,565) (1,340) (15,905) - - -
-------- -------- -------- -------- ----------- --------
At 30 September 2020 75,290 2,216 77,506 46,775 30,890 77,665
-------- -------- -------- -------- ----------- --------
* Changes in fair value of investments are dealt with in this
reserve.
(#) The total of these items is GBP56,531,000, (2020:
GBP7,701,000) which agrees to the total profit for the year.
Distributable reserves may also include any net unrealised gains
on investments whose prices are quoted in an active market and
deemed readily realisable in cash.
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
Audited Financial Statements.
Investments in companies listed on the AIM market usually
involve a higher risk than investments in larger companies quoted
on a recognised stock exchange. The spread between the buying and
selling price of such shares may be wide and the price used for
valuation may be limited and many may not be achievable. The
valuation of the portfolios and opportunities for realisation of
AIM-traded investments within the portfolios may also depend on
stock market conditions.
The Company aims to reduce these risks by diversifying the
portfolio across business sectors and asset classes. The Board
monitors the portfolio on a quarterly basis.
Investments in unquoted companies, by their nature, usually
involve a higher degree of risk than investments in companies
quoted on a recognised stock exchange. The fair valuation of these
unquoted investments is influenced by the estimates, assumptions
and judgements made in the fair valuation process (see 2.3
above).
Price risk sensitivity
As at 30 September 2021, each unquoted company has been
classified as having a higher, medium or lower level of estimation
uncertainty by considering a range of factors including the
availability and extent of cash resources, and the potential
disruption to business activities caused by the COVID-19 pandemic
and associated government intervention. In addition, the impact of
COVID-19 on the relevant industry, liquidity concerns for the
specific company, and operational impacts on the business were also
considered in arriving at the level of estimation uncertainty. For
example, we have classified investments in the casual dining and
travel sectors as higher risk as the impact of COVID-19 on these
industries has been particularly severe. There is higher
uncertainty around the estimated sustainable earnings of these
businesses, and the extent of their cash resources, and therefore
there are a larger range of possible outcomes from the valuation of
these investments.
A greater sensitivity factor has been applied to those
investments assessed as having a higher level of estimation
uncertainty. The sensitivities applied illustrate the impact of
varying the key inputs by the levels specified, however it is
possible that by applying reasonable alternative assumptions to
individual investments, the fair value may vary to a greater extent
than that illustrated. A higher sensitivity of 30 per cent has been
applied to the companies considered to have the highest level of
estimation uncertainty, to reflect that their valuation, is much
more uncertain and challenging to predict than for the medium and
lower risk companies, where a sensitivity of between 2 0 per cent
and 5 per cent has been applied respectively.
The table below has split out each risk category and applied
both upside and downside sensitivities to the key variable inputs.
The sensitivities give an indication of the effect of changing one
or more of the inputs to these valuations, and the impact of
increased volatility depending on exposure to the future and
current effects of COVID-19. The valuation has then been
recalculated using this adjusted key variable input, in order to
determine the impact on the fair value of the Company's investment.
The structure of the investment will vary between investee
companies and therefore the impact on the investment's fair value
will vary. For example, the Company holds a preferred, or priority
position, in many of the investee companies and therefore in these
cases may be more protected from severe downside scenarios.
As at 30 September 2021
Positive impact Negative impact
Fair
Risk Sensitivity Value % of net % of net
Security Valuation basis Key variable inputs Level % GBP'000s GBP'000s assets GBP'000 assets
--------- --------------------------- ---------------------------- -------- ----------- -------- -------- -------- -------- --------
Unquoted Earnings multiple Estimated sustainable
earnings
---------------------------
Selection of comparable
companies High +/-30 4,979 2,246 0.9 (2,344) (0.9)
Application of illiquidity
discount Medium +/-20 28,106 6,571 2.6 (7,149) (2.9)
Probability estimation of
Liquidation event Low +/-10 19,835 1,409 0.6 (1,370) (0.6)
---------------------------- ---------------------------------------------- ----------- -------- -------- -------- -------- --------
Medium +/-10 1,509 151 0.1 (151) (0.1)
Price of recent investment L atest funding round price Low +/- 5 5,209 357 0.1 (452) (0.2)
--------------------------- ---------------------------- -------- ----------- -------- -------- -------- -------- --------
O ther Low +/-5 334 17 0.0 (17) 0.0
--------------------------------------------------------- ----------------- ----------- -------- -------- -------- -------- --------
A sensitivity has also been performed for quoted AIM
investments, which are valued at the latest share price set by the
market. A sensitivity of +/- 20 per cent has been applied to the
fair value of GBP102.4 million, reflecting the level of volatility
in financial markets in 2021 and 2020. A movement of +/- 20 per
cent would cause an increase or decrease of GBP20.5 million to the
fair value of the quoted AIM portfolio.
A sensitivity has also been performed for the Company's
investments into the Micro Cap, Multi Cap and Small Cap funds,
which are valued at the latest share price set by the market. A
sensitivity of +/- 20 per cent has been applied to the fair value
of GBP49.3 million, reflecting the level of volatility in financial
markets in 2021. A movement of +/- 20 per cent would cause an
increase or decrease of GBP9.9 million to the fair value of these
investments.
As at 30 September 2020
Positive impact Negative impact
Valuation Key variable Sensitivity Fair Value % of net % of net
Security basis inputs Risk Level % GBP'000s GBP'000s assets GBP'000 assets
--------- ----------- ------------ ------------ ----------- ---------- -------- ---------- --------- --------
Unquoted Earnings Estimated
multiple sustainable
earnings
-----------
Selection of
comparable
companies High +/-30 9,158 2,334 1.3 (4,672) (2.6)
Application
of
illiquidity
discount Medium +/-20 16,828 6,525 3.6 (4,4047 (2.2)
Probability
estimation
of
Liquidation
event Low +/-10 5,367 632 0.3 (407) (0.2)
------------ ---------------------------------- ----------- ---------- -------- ---------- --------- --------
Price of L atest
recent funding Medium +/-10
investment round price Low +/- 5 8,046 4,481 2.5 (448) (0.2)
----------- ------------ ---------------------- ----------- ---------- -------- ---------- --------- --------
O ther Low +/-5 7,043 352 0.2 (352) (0.2)
------------------------- --------------------- ----------- ---------- -------- ---------- --------- --------
Key variable inputs/valuation bases
The key variable inputs applicable to each valuation basis will
vary dependent on the particular circumstances of each unquoted
company valuation. Where there has been a recent transaction, such
as an initial investment being made into the company, or where
there has been a subsequent external funding round, the key
variable input will be the last funding round price. Where this is
not the case, the valuation has been based on a multiple of
estimated sustainable earnings. An explanation of each of the key
variable inputs is provided below and includes an indication of the
range in value for each input, where relevant.
Latest funding round price
The latest funding round price is the key variable input in the
valuation of a company when there has been a recent investment
either by the Company or by another investor. This transaction
provides evidence of the price an independent third party would be
willing to pay for the investment. There is lower estimation
uncertainty where this third party is an external investor, and
higher estimation uncertainty where this is an internal investor
(i.e. where the investor already has an investment in the
company).
Estimated sustainable earnings
The selection of sustainable revenue or earnings will depend
upon whether the company is sustainably profitable or not, and
where it is not then revenues will be used in the valuation. The
valuation approach may use prior year actuals, the last 12 months,
or a forecast of earnings where deemed appropriate. The valuation
approach will typically assess companies based on the prior year
actuals or last 12 months of revenue or earnings, as this
represents the most recently available trading information and
therefore is viewed as the most reliable. Where the company has a
history of accurate forecasting, or where there is a change in
circumstance at the business which will impact earnings going
forward, then a forecast or budget will be deemed most
appropriate.
Selection of comparable companies
The selection of comparable companies is assessed individually
for each investment at the point of investment, and at each
valuation thereafter. The key criteria in selecting appropriate
comparable companies are the industry sector, the business model,
and the respective revenue and earnings growth rates of the
company. Typically up to 15 comparable companies will be selected
for each investment to derive adopted revenue or earnings
multiple.
The earnings multiples can be derived from either listed
companies with similar characteristics or recent comparable
transactions. The value of the unquoted element of the portfolio
may therefore also indirectly be affected by price movements on the
listed exchanges.
Application of illiquidity discount
An illiquidity discount is applied to the majority of unquoted
investments, reflecting that the Company usually holds a minority
stake and that the realisation of the investment may require
cooperation on the timing and sale price from other stakeholders.
The illiquidity discount applied can range from 10 per cent to 30
per cent , depending upon the ownership percentage the Company
holds in the investment and the Company's alignment with other
institutional investors.
Probability estimation of liquidation event
A liquidation event is typically a company sale or an I nitial P
ublic O ffering (IPO). The probability of a company sale versus an
IPO is typically estimated from the outset to be 50:50 if there has
been no indication by the company of pursuing either of these
routes. This weighting is then adjusted as either scenario becomes
more or less likely to occur.
Interest rate risk
The Company has the following investments in fixed and floating
rate financial assets:
As at 30 September 2021 As at 30 September 2020
Weighted Weighted
Weighted average Weighted average
average time for average time for
Total interest which rate Total interest which rate
investment rate is fixed investment rate is fixed
GBP'000 % Years GBP'000 % Years
----------------------- ------------ --------- ----------- ------------ --------- -----------
Fixed rate loan note
securities 12,102 7.58 3.20 15,773 7.82 1.99
Floating rate sterling
liquidity funds 26,390 - - 30,084 - -
Cash at bank and on
deposit 12,312 - - 3,108 - -
50,804 48,965
======================= ============ ====================== ============ ======================
The fixed rate loans are not subject to interest rate risk and
would therefore not impact the net assets. Movements in interest
rates would not significantly affect net assets attributable to the
Company's Shareholders and total profits due to the interest rate
income received from floating rate notes being wholly
immaterial.
Credit risk
Credit risk refers to the risk that a counterparty will default
on its obligation resulting in a financial loss to the Company. The
Manager monitors credit risk on an ongoing basis.
At the reporting date, the Company's financial assets exposed to
credit risk amounted to the following:
As at As at
30 September 30 September
2021 2020
GBP'000 GBP'000
Cash at bank and on deposit 12,312 3,108
Interest, dividends and other receivables 109 571
12,421 3,679
========================================== ============= =================
Credit risk on unquoted loan stock held within unlisted
investments is considered to be part of market risk as disclosed
earlier in the note.
Credit risk arising on transactions with brokers relates to
transactions awaiting settlement. Risk relating to unsettled
transactions is considered to be small due to the short settlement
period involved and the high credit quality of the brokers used.
The Board monitors the quality of service provided by the brokers
used to further mitigate this risk.
All the assets of the Company which are traded on a recognised
exchange are held by JP Morgan Chase ("JPM"), the Company's
custodian. The board monitors the Company's risk by reviewing the
custodian's internal controls reports as described in the Corporate
Governance section of the full Annual Report.
The majority of cash held by the Company is held by JPM. The
board monitors the Company's risk by reviewing regularly the
internal control reports. Should the credit quality or the
financial position of the bank deteriorate significantly the
Manager will seek to move the cash holdings to another bank.
There were no significant concentrations of credit risk to
counterparties at 30 September 2021 or 2020. No individual
investment in a portfolio company exceeded 6.7 per cent of the net
assets attributable to the Company's shareholders at 30 September
2021 (2020: 4.9 per cent).
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 Manager. The Company's overall liquidity risks are monitored on
a quarterly basis by the Board. The Company is a closed-end fund,
assets do not need to be liquidated to meet redemptions, and
sufficient liquidity is maintained to meet obligations as they fall
due.
At the year end the company had financial liabilities of
GBP2,147,000 (2020: GBP1,294,000). All financial liabilities were
due within three months and were undiscounted (2020: same).
The Company maintains su cient investments in cash and readily
realisable securities to pay accounts payable and accrued expenses.
At 30 September 2021, these investments were valued at
GBP38,702,000 (2020: GBP33,191,000).
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 Class of % of Equity Profit Net Assets Results for
Shares held (GBPm) (GBPm) year ended
A Ordinary 31 December
Happy Days Consultancy UK & A Preference 35.7 (3.0) (12.7) 2020
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 the full Annual
Report. In addition, the Manager operates a VCT Incentive Scheme,
detailed in the Management retention section of the Strategic
Report above, whereby members and staff of the Manager are entitled
to participate in all eligible unquoted investments alongside the
Company.
During the year, Gresham House Asset Management Ltd received
GBP254,000 advisory fees, GBP375,000 of directors' fees for
services provided to companies in the investment portfolio and
incurred abort costs of GBP8,000 with respect to investments
attributable to Baronsmead Second Venture Trust plc.
A related party relationship exists between Baronsmead Second
Venture Trust plc and Happy Days Consultancy, owing to the
significant influence held over the operations of the company. As
at 30 September 2020, the loan from the VCT to the company stood at
GBP3,510,000, including GBP1,122,000 of capitalised interest.
The Company also holds an investment in Gresham House plc, as
part of its quoted portfolio. This investment was made in November
2014, prior to the change of Manager. For further details on this
please refer to the Full Investment Portfolio in the Appendices in
the full Annual Report.
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 Commitments
As at 30 September 2021, the Company has commitments to invest
up to GBP1.0 million, of which the full GBP1.0 million has been
drawn as at the date of this report.
3.8 Post balance sheet events
The following events occurred between the balance sheet date and
the signing of these financial statements:
-- One follow-on investment, into Airfinity, completed totalling GBP1.0 million.
-- Partial realisations in Cerillion plc were made in November,
realising proceeds of GBP0.8 million and making a return of 11.4x
cost.
National Storage Mechanism
A copy of the Annual Report and Financial Statements and the
separate circular containing the AGM notice will be submitted
shortly to the National Storage Mechanism ("NSM") and will be
available for inspection at the NSM, which is situated at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism .
Corporate information
Directors Registrars and Transfer Office
Sarah Fromson (Chairman)++ Computershare Investor Services
Graham McDonald plc
Timothy Farazmand** The Pavilions
Malcolm Groat* Bridgwater Road
Secretary Bristol BS99 6ZZ
Gresham House Asset Management Ltd Tel: 0800 923 1534
Registered Office Brokers
5 New Street Square Panmure Gordon & Co
London EC4A 3TW One New Change
London EC4M 9AF
Inve stment Manager Tel: 020 7886 2500
Gresham House Asset Management Ltd
5 New Street Square Auditor
London EC4A 3TW BDO LLP
55 Baker Street
Registered Number London W1U 7EU
04115341
Solicitors
Dickson Minto W.S.
Broadgate Tower
20 Primrose Street
London EC2A 2EW
VCT Status Adviser
PricewaterhouseCoopers LLP
++ Chairman of the Nomination Committee 1 Embankment Place
* Chairman of the Audit Committee London WC2N 6RH
** Chairman of the Management Engagement
& Remuneration Committee Website
Senior Independent Director www.baronsmeadvcts.co.uk
LEI: 2138008D3WUMF6TW8C28
END
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