Source - LSE Regulatory
RNS Number : 4602C
Baronsmead Second Venture Trust PLC
13 June 2023
 

Baronsmead Second Venture Trust plc

Half-yearly report for the six months ended 31 March 2023

 

The Directors of Baronsmead Second Venture Trust plc are pleased to announce the unaudited half-yearly financial report for the six months to 31 March 2023. Copies of the half-yearly report can be obtained from the following website: www.baronsmeadvcts.co.uk

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 the Alternative Investment Market ("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 financial year, typically an interim dividend in September and a final dividend following the Annual General Meeting.

·      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.

 

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 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, for it to be either sold or potentially floated in the medium term.

 

Strategic report

Financial highlights

NAV per share decreased 1.8% per cent. to 61.0p, before the deduction of dividends, in the six months to 31 March 2023.

 

323.2p Net Asset Value ("NAV") total return to shareholders for every 100.0p invested at launch (January 2001).

 

£4.6mn Investments made into two new and three follow-on opportunities during the period (Unquoted: £3.4mn, Quoted: £1.2mn).

 

£25.0mn raised in the period (before costs).

 

Cash returned to shareholders by date of Investment

 

The chart below shows the cash returned to shareholders based on the subscription price and the income tax reclaimed on subscription.

Year subscribed

Cash invested

(p)

Income tax reclaim

(p)

 

Net cash invested

(p)

Cumulative dividends

paid#

 (p)

Return on cash invested# (%)

2001 (January)

100.00

20.00

80.00

162.55

182.6

2005 (March) - C share*

100.00

40.00

60.00

117.69

157.7

2010 (March)

103.10

30.93

72.17

114.25

140.8

2012 (December)

117.40

35.22

82.18

96.25

112.0

2014 (March)

112.40

33.72

78.68

76.25

97.8

2016 (February)

107.20

32.16

75.04

59.75

85.7

2017 (October)

97.48

29.24

68.24

39.75

70.8

2019 (February)

85.30

25.59

59.71

32.25

67.8

2019 (November)

78.90

23.67

55.23

24.75

61.4

2020 (January)

84.80

25.44

59.36

24.75

59.2

2020 (February)

82.50

24.75

57.75

21.25

55.8

2020 (March)

64.30

19.29

45.01

21.25

63.0

2020 (November)

77.90

23.37

54.53

18.25

53.4

2020 (December)

80.90

24.27

56.63

18.25

52.6

2021 (January)

84.40

25.32

59.08

18.26

51.6

2021 (February)

82.20

24.66

57.54

14.75

47.9

2021 (March)

84.90

25.47

59.43

14.75

47.4

2021 (December)

88.10

26.43

61.67

11.75

43.3

2022 (January)

87.10

26.13

61.97

11.75

43.5

2022 (March)

76.60

22.98

53.62

8.25

40.8

2023 (January)

68.191

20.46

47.73

5.25

37.7

2023 (March)

65.722

19.72

46.00

2.25

33.4

 

The total return could be higher for those shareholders who were able to defer a capital gain on subscription and the net sum invested may be less.

*  Dividends paid to C shareholders post conversion have been adjusted by the conversion ratio (0.85642528).

#  Includes interim dividend of 2.25p per share payable 8 September 2023.

† Shares were allotted pursuant to the 2023 Offer at individual prices for each investor in accordance with the allotment formula as set out in each Offer's Securities Note.

1.  Average effective offer price based on allotment prices between 67.6p and 71.5p.

2. Average effective offer price based on allotment prices between 64.8p and 67.9p.

 

Chair's statement

The UK economic backdrop continued to be challenging through the end of 2022 and into the first quarter of 2023. Inflation and interest rates remained at high levels and there was much uncertainty across the financial markets. This led to uncertainty in the debt markets and a liquidity squeeze. This was compounded in the first quarter of 2023 by the collapse of Silicon Valley Bank and then of Credit Suisse, which led to fears of a more widespread banking sector contagion. Consumer and business confidence remains fragile.

 

Against this backdrop, the quoted portfolio delivered strong growth in the last quarter of 2022 as markets recovered from the declines seen earlier in the year. This continued into the first quarter of 2023 with some hopes of inflation and the cost-of-living crisis easing. This partially offset the declines from the uncertainty generated by the concerns within the banking sector and recessionary fears. The Manager continues to believe that, in aggregate, the fundamentals of the underlying portfolio companies remain robust and the growth prospects for the majority of investee companies continue to be positive over the medium term. The portfolio also remains relatively defensively positioned with high levels of diversification. The portfolio contains over 85 direct investments, both quoted and unquoted assets, and a bias towards sectors which have more resilient, contracted or recurring revenue streams.

The Board is declaring an interim dividend of 2.25p to be paid on 8 September 2023 to shareholders on the register as of 11 August 2023. The Board is aware that dividends are an important part of the total return to the shareholders' investment in the Company. Over the period, there were no capital proceeds realised from the sale, or partial sale, of any portfolio companies. The Board has considered the capital reserves available along with potential known realisations and has made the decision to slightly reduce the interim dividend amount compared to recent years. The Board continues to aim to achieve its dividend policy objective of an annual yield of 7.0 per cent of opening NAV.

I must, of course, remind shareholders that payment dates and the amount of future dividends depend on the level and timing of profitable realisations and cannot be guaranteed.

 

Results

 

During the six months to 31 March 2023, the Company's NAV per share decreased 1.8 per cent. from 62.1p to 61.0p after the payment of a final dividend of 3.0p per share on 3 March 2023. The table below breaks down the movement in NAV over the six months.

 

 

 

Pence per ordinary share

NAV as at 1 October 2022 (after deducting the final dividend of 3.0p)

62.1

Valuation decrease (1.8 per cent.)

(1.1)

NAV as at 31 March 2023

61.0



 

Over the two months to 31 May 2023, NAV was 62.6p per share, a 2.6 per cent. increase over the NAV as at 31 March 2023. This was driven by firmer quoted markets.

 

Portfolio review

The table below provides a summary of each asset class and the return generated during the period under review.

 

Asset class

NAV*

(£mn)

 

% of

NAV*

 

Number of

investees companies**

 

% return

in the period***

 

Unquoted

48

23

41

(14)

AIM-traded companies

78

37

46

2

LF Gresham House UK Micro Cap Fund

25

12

48

7

LF Gresham House UK Multi Cap Income Fund

20

9

40

7

LF Gresham House UK Smaller Companies Fund

11

5

38

4

Liquid assets#

29

14

N/A

2

Total

211

100

213

(2)

 

*      By value at 31 March 2023.
**       Includes investee companies with holdings by more than one fund. Total number of individual companies held is 164.
***     Return includes interest received on unquoted realisations during the period.

#            Represents cash, OEICs and net current assets. % return in the period relates only to the OEICs.

 

The value of the unquoted portfolio decreased 14.2 per cent. in the six months to 31 March 2023. The drop in value was driven by a combination of lower benchmark market comparables and softening trading performance of the investee companies as a result of the decline in consumer confidence.

 

The value of the Company's portfolio of investments directly held in AIM-traded companies increased 1.8 per cent. in the six months to 31 March 2023. The value of the Company's investment into the LF Gresham House UK Micro Cap Fund ("Micro Cap") increased by 7.4 per cent., the LF Gresham House UK Smaller Companies Fund ("Small Cap") increased by 4.2 per cent. and the LF Gresham House UK Multi Cap Income Fund ("Multi Cap") increased by 7.2 per cent. in the period. This was primarily due to positive news flow across the portfolio being well received by the markets with a number of trading updates demonstrating better than expected financial performance.

 

Investments and divestments

 

The Company's investments and divestments during the period are set out below.

 

Investments

 

I am pleased to report that the Company made two new investments totalling £1.4mn and three follow-on investments with a combined value of £3.3mn in the six months to 31 March 2023. Below are descriptions of the new investments made:

 

·      Cognassist (unquoted) - a platform for supporting those with learning needs.

·      Connect Earth (unquoted) - help businesses track their carbon emissions.

·      Patchworks (unquoted) - a platform for connecting businesses' applications.

·      Seeen (quoted) - a video technology business.

·      Oberon (quoted) - wealthy advisory service for individuals and businesses.

Following the period end, two further follow-on investments were made into Airfinty and Panthera Biopartners, totalling £1.2mn, and a new unquoted investment of £0.8mn was made into Dayrize, a platform for assessing the sustainability of products.

 

Realisations

 

There were no realisations during the period. However, Glisser, a provider of conference and educational software provider and CMME, a specialist mortgage broker, went into administration. Both businesses had experienced very challenging trading conditions over the past year and their valuations had already been written down.

Following the period end, in the unquoted portfolio; Evotix was acquired resulting in a gross money multiple of 0.7x original cost; the deferred consideration from the sale of Key Travel in 2018 was received, resulting in a gross money multiple of 3.2x original cost; and also the earn-out consideration from the Pho realisation which, in addition to the proceeds received at the time of the realisation, resulted in a gross money multiple of 3.1x original cost. In the quoted portfolio, we continued to top-slice Cerillion plc resulting in proceeds of £0.7mn.

 

Fundraising

 

I am pleased to report that, during the period, the Company successfully raised £25.0mn (before costs) through an offer for subscription which became fully subscribed in April 2023. The Directors are pleased to welcome the 1,007 new shareholders who invested during the offer period and are appreciative of the continued support of 442 pre‑existing shareholders.

The Board will consider whether to raise new funds in the 2023/24 tax year. This will be determined by the Company's cashflow and its anticipated requirements to fund new and follow-on investments over the next two to three years. The Board appreciates that shareholders would like ample notice of its fundraising intentions and will ensure that shareholders are informed of any such fundraising at the earliest practical time.

 

Consumer Duty

 

The Financial Conduct Authority ("FCA") has introduced the concept of Consumer Duty, the rules and principles which come into effect in July 2023. Consumer Duty is an advance on the existing concept of 'treating customers fairly' and looks to ensure good outcomes for purchasers of investment products. As a listed entity, Baronsmead Second Venture Trust plc, alongside other investment companies, are not themselves subject to Consumer Duty.

 

Instead, in their role as promoter of the investment Manager to the Company, it is Gresham House, and any other FCA regulated parties associated with your investment in the Company, that must uphold the principles behind the Consumer Duty. To that end, the Board is working with Gresham House to review the information that should be provided to assist investors and their advisers to discharge their obligations under Consumer Duty.

 

VCT Regulation - Financial Heath Test

 

Since the various VCT rule changes in both 2015 and 2018, VCT qualifying investments have become focussed on smaller, younger companies. As a result, when the Manager makes a new investment, they expect to make further follow-on investments as the investee company progresses and where the business case for the investment is justified. These follow-on investments are subject to the same VCT compliance rules as new deals and both rely on certain criteria being met, including the Financial Health Test.

 

The Financial Health Test is not something new and was primarily introduced as an anti-abuse regulation. However, following amendment to HMRC's guidance, there has been an effective tightening of the interpretation of the Financial Health Test. This is resulting in the restriction of potential follow-on VCT investment to support certain portfolio companies. This has the potential to negatively impact shareholders' returns as a result of portfolio companies going into administration when they might otherwise have gone on to be successful. Furthermore, as this is an industry wide issue, this measure increases the uncertainties small companies face at a particularly difficult time and may well result in unnecessary job losses and hardship to employees and their families and has the potential to reduce the overall tax efficiency of the VCT scheme as a whole.

The Board continues to monitor developments in this area carefully and supports the representations being made by the AIC and the VCTA to HMRC and HM Treasury to seek a change to HMRC's guidance in this area.

 

Outlook

 

The Board expects that market conditions will remain volatile throughout 2023. It is likely that UK inflation will ease - whilst remaining higher than Bank of England forecasts. Nonetheless, there remains a material possibility of recession in the UK.

However, the portfolio is well diversified, and is largely positioned in sectors of the economy which the Board expects will benefit from long-term structural growth tailwinds. Whilst the geopolitical and economic context for the next year is liable to be challenging, experience suggests that investing through the cycle can often produce superior returns. This can also provide an opportunity for the Company to make high quality investments and build strategic stakes in businesses with great potential for the future. This applies to both new investments and further investments in the portfolio. There are good prospects in the pipeline across a variety of themes and sectors. The Company remains suitably capitalised and the Manager is well resourced to support investment into new and existing portfolio companies, which is expected to drive value creation and steady dividend payments to shareholders over the long-term.

 

Sarah Fromson

Chair

 

12 June 2023

 

Investments in the period

 

Company

Location

Sector

Activity

Book cost

£'000

Unquoted investments

New

Cognassist UK Ltd

Newcastle upon Tyne

Healthcare & Education

A platform for supporting those with learning needs

       902

Connect Earth Ltd

London

Business Services

Helps businesses track their carbon emissions

451

Follow on

Patchworks Integration Ltd

Nottingham

Technology

A platform for connecting businesses' applications

2,080

Total unquoted investments

3,433

 

AIM-traded investments

Follow - on

SEEEN plc

London

Technology

A wide technology business

659

Oberon Investments Group plc

London

Business services

Wealth advisory service for individuals and businesses

531

Total AIM-traded investments

1,190

Total investments in the period

4,623

 

 

Realisations in the period

 

There were no realisations in the period.

 

 

Responsibility statement of the Directors in respect of the half-yearly financial report

 

Half-yearly report

 

The important events that have occurred during the period under review, the key factors influencing the financial statements and the principal uncertainties for the remaining six months of the financial year are set out in the Chair's statement and the Strategic report.

The principal risks facing the Company are mostly unchanged since the date of the Company's Annual Report for the financial year ended 30 September 2022 and continue to be as set out in that Report on pages 18 and 19.

Risks faced by the Company include but are not limited to; loss of approval as a Venture Capital Trust, legislative risk, investment performance risk, risk of economic, political and other external factors, regulatory and compliance risk and operational risk. The Board considers the aftermath of the COVID-19 pandemic and the Russian invasion of Ukraine to be factors which permeate these risks, and their impacts for the remaining six months of the year continue to be kept under review.

 

Responsibility statement

 

Each director confirms that to the best of their knowledge:

            the condensed set of financial statements has been prepared in accordance with FRS 104 Interim Financial Reporting Standards and gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Company.

            This half-yearly report includes a fair review of the information required by:

 

a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

The half-yearly report was approved by the Board of Directors on 12 June 2023 and was signed on its behalf by Ms Sarah Fromson, Chair.

 

Sarah Fromson

Chair

12 June 2023

 

 

 

Condensed income statement

For the six months to 31 March 2023 (Unaudited)

 


 

Notes

Six months to
31 March 2023

Six months to
31 March 2022

Year to
30 September 2022

Revenue

£'000

Capital

£'000

Total

£'000

Revenue

£'000

Capital

£'000

Total

£'000

Revenue

£'000

Capital

Total

£'000

Losses on investments

5

-

(2,132)

(2,132)

-

(27,719)

(27,719)

-

(48,771)

Income


1,201

-

1,201

961

-

961

4,951

4,951

Investment management fee


(620)

(1,860)

(2,480)

(706)

(2,116)

(2,822)

(1,367)

(5,468)

Other expenses


(357)

-

(357)

(359)

-

(359)

(669)

(669)

Profit/(loss) before taxation


224

(3,992)

(3,768)

(104)

(29,835)

(29,939)

2,915

(49,957)

Taxation on ordinary activities


-

-

-

-

-

-

(263)

-

Profit /(loss) for the period, being total comprehensive income for the period after taxation


224

(3,992)

(3,768)

(104)

(29,835)

(29,939)

2,652

(49,957)

Return per ordinary share:


 

 

 






Basic and Diluted

2

0.07p

(1.21p)

(1.14p)

(0.4p)

(10.04p)

(10.08p)

0.85p

(16.85p)

(16.00p)

 

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 unaudited Statement of Total Comprehensive Income of the Company prepared in accordance with the Financial Reporting Standard ("FRS"). 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").

 

Condensed statement of changes in equity

 

 

 

Non-distributable reserves

Distributable reserves

 

Called-up share capital

£'000

Share

premium £'000

Revaluation

reserve

£'000

Capital

reserve £'000

Revenue

reserve

£'000

Total

£'000

At 1 October 2022

35,789

106,099

18,834

49,142

3,122

212,986

(Loss)/profit on ordinary activities after taxation

-

-

(3,433)

(559)

224

(3,768)

Net proceeds of share issues, share buybacks & sale of shares from treasury

1,933

10,718

-

(771)

-

11,880

Dividends paid

-

-

-

(9,116)

(1,013)

(10,129)

At 31 March 2023

37,722

116,817

15,401

38,696

2,333

210,969

For the six months to 31 March 2023 (Unaudited)

 

 

For the six months to 31 March 2022 (Unaudited)


Non-distributable reserves

Distributable reserves

 

Called-up share capital

£'000

Share

premium £'000

Revaluation

reserve

£'000

Capital

reserve £'000

Revenue

reserve

£'000

Total

£'000

At 1 October 2021

31,206

74,231

77,481

63,698

1,758

248,374

(Loss)/ profit after taxation

-

-

(34,540)

4,705

(29,939)

Net proceeds of share issues, share buybacks & sale of shares from treasury

4,583

31,868

-

(1,050)

-

35,401

Dividends paid

-

-

-

(10,465)

(308)

(10,773)

At 31 March 2022

35,789

106,099

42,941

56,888

1,346

243,063

 

 

For the year ended 30 September 2022 (Audited)


Non-distributable reserves

Distributable reserves


Called-up share capital

£'000

Share

premium£'000

Revaluation

reserve

£'000

Capital

reserve £'000

Revenue

reserve

£'000

Total

£'000

At 1 October 2021

31,206

74,231

77,481

63,698

1,758

248,374

(Loss)/Profit after taxation

-

-

(58,647)

6,038

2,652

(49,957)

Net proceeds of share issues, share buybacks & sale of shares from treasury

4,583

31,868

-

(1,302)

-

35,149

Dividends paid

-

-

-

(19,292)

(1,288)

(20,580)

At 30 September 2022

35,789

106,099

18,834

49,142

3,122

212,986

 

 

Condensed balance sheet

As at 31 March 2023 (Unaudited)

 

                                                                                                        

Notes

 

As at

31 March

2023

£'000

 

As at

31 March

2022

£'000

As at

30 September

2022

£'000

Fixed assets

 

 

 


Unquoted investments                                                                        

5

48,545

53,887

53,118

Traded on AIM                                                                                    

5

77,655

83,916

75,051

Collective investment vehicles                                                              

5

69,933

60,053

49,502

Listed on LSE

5

-

34

34

Investments                                              

5

196,133

197,890

177,705

Current assets

 

 

 


Debtors

 

1,477

106

152

Cash at bank and on deposit

 

14,803

46,647

36,622


 

16,280

46,753

36,774

Creditors (amounts falling due within one year)

 

 

(1,444)

(1,580)

(1,493)

Net current assets

 

14,836

45,173

35,281

Net assets

 

210,969

243,063

212,986

Capital and reserves

 

 

 


Called-up share capital

 

37,722

35,789

35,789

Share premium

 

116,817

106,099

106,099

Capital reserve

 

38,696

56,888

49,142

Revaluation reserve                                                                           

5

15,401

42,941

18,834

Revenue reserve

 

2,333

1,346

3,122

Equity shareholders' funds

 

210,969

243,063

212,986

 

 

 

 


Net asset value per share

 

61.0p

74.2p

65.1p

Number of ordinary shares in circulation

 

345,640,159

327,596,768

327,288,384

 

Condensed statement of cash flows

For the six months to 31 March 2023 (Unaudited)           

 

 

 

 

Six months to

31 March

 2023

£'000

Six months to
31 March

2022

£'000

Six months to
30 September 2022

£'000

Net cash outflow from operating activities

(2,035)

(2,536)

(1,872)

Net cash (outflow) /inflow from investing activities

(21,534)

12,689

12,058

Net cash (outflow)/ inflow before financing activities

(23,569)

10,153

10,186

Net cash inflow from financing activities

1,750

24,182

14,124

(Decrease)/ Increase in cash

(21,819)

34,335

24,310

Reconciliation of net cash flow to movement in net cash

 

 


(Decrease)/ increase in cash

(21,819)

34,335

24,310

Opening cash at bank and on deposit

36,622

12,312

12,312

Closing cash at bank and on deposit

14,803

46,647

36,622

Reconciliation of (loss)/ profit/ before taxation to net cash outflow from operating activities

 

 


Loss on ordinary activities before taxation

(3,768)

(29,939)

(49,957)

Losses on investments

2,132

27,719

48,771

Changes in working capital and other non-cash items

(399)

(316)

(686)

Net cash outflow from operating activities

(2,035)

(2,536)

(1,872)

 

 

Notes to the financial statements

 

For the six months to 31 March 2023 (Unaudited)

 

1.         Basis of preparation

 

The condensed financial statements for the six months to 31 March 2023 comprise the unaudited financial statements set out on pages 13 to 16 together with the related notes on pages 17 to 21. The Company applies FRS 102 and the AIC SORP for its annual Financial Statements. The condensed financial statements for the six months to 31 March 2023 have therefore been prepared in accordance with FRS 104 'Interim Financial Reporting' and the principles of the SORP. They have also been prepared on a going concern basis. The financial statements have been prepared on the same basis as the accounting policies set out in the Company's Annual Report and Financial Statements for the year ended 30 September 2022.

The financial information contained in this half-yearly financial report does not constitute statutory accounts as defined in sections 434 - 436 of the Companies Act 2006. The half-yearly financial report for the six months ended 31 March 2023 and for the six months ended 31 March 2022 have been neither audited nor reviewed by the Company's Auditor. The information for the year to 30 September 2022 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies. The report of the Auditor for the audited financial statements for the year to 30 September 2022 was: (i) unqualified; (ii) did not include a reference to any matters to which the Auditor 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. No statutory accounts in respect of any period after 30 September 2022 have been reported on by the Company's Auditor or delivered to the Registrar of Companies.

Copies of the half-yearly financial report have been made available to shareholders and are available from Gresham House, 80 Cheapside, London, EC2V 6EE.

 

2.         Performance and shareholder returns

 

Return per share is based on a weighted average of 330,678,751 ordinary shares in issue (31 March 2022 - 297,083,965 ordinary shares; 30 September 2022 - 312,132,990 ordinary shares).

 

Earnings for the first six months to 31 March 2023 should not be taken as a guide to the results of the full financial year to 30 September 2023.

 

3.         Called-up share capital

 

The below table details the movement in called-up share capital during the period.

 

Allotted, called-up and fully paid:

 

 

 

Ordinary shares

£'000

252, 3357,889,473 ordinary shares of 10p each listed at 30 September 2022

35,789

19,335,239 ordinary shares of 10p each issued during the period

1,933

377,224,712 ordinary shares of 10p each listed at 31 March 2023

37,722

30,601,089 ordinary shares of 10p each held in treasury at 30 September 2022

(3,060)

2,264,464 ordinary shares of 10p each repurchased during the period and held in treasury

(226)

1,281,000 ordinary shares of 10p each sold from treasury during the period

128

31,584,553 ordinary shares of 10p each held in treasury at 31 March 2023

(3,158)

345,640,159 ordinary shares of 10p each in circulation* at 31 March 2023

34,564

*carrying one vote each


During the six months to 31 March 2023 the Company issued 19,335,239 shares at net proceeds of £12,543,000 (after costs). During the same period, the Company purchased 2,264,464 shares to be held in treasury at a cost of £1,430,000 (including costs). The Company also sold 1,281,000 shares from treasury for proceeds of £767,000. At 31 March 2023, the Company held 31,584,553 ordinary shares in treasury. Shares may be sold out of treasury below Net Asset Value as long as the discount at issue is narrower than the average discount at which the shares were bought into treasury.

Excluding treasury shares, there were 345,640,159 ordinary shares in circulation at 31 March 2023 (31 March 2022 - 327,596,768 ordinary shares; 30 September 2022 - 327,288,384 ordinary shares).

4.         Dividends

 

The final dividend for the year ended 30 September 2022 of 3.0p per share (2.7p capital, 0.3p revenue) was paid on 3 March 2023 to shareholders on the register on 3 February 2023. The ex-dividend date was 2 February 2023.

During the year to 30 September 2022, the Company paid an interim dividend on 9 September 2022 of 3.0p per share (2.7p capital, 0.3p revenue).

 

5.         Investments

 

All investments are initially recognised and subsequently measured at fair value. Changes in fair value are recognised in the Income Statement.

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.

 

The valuation of unquoted investments contained within level 3 of the Fair Value hierarchy involves key assumptions dependent upon the valuation methodology used. The primary methodologies applied are:

·      Cost of recent investment.

·      Earnings multiple.

·      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. Key assumptions for the earnings multiple approach are the selection of comparable companies and the use of either historic or forecast revenue or earnings, as considered most appropriate. Other assumptions include the appropriateness of the discount magnitude applied for reduced liquidity and other qualitative factors. These assumptions are described in more detail in note 2.3 in the Company's Report and Financial Statements for the year to 30 September 2022. The techniques used in the valuation of unquoted investments have not changed materially since the date of that report.

 


Level 1

Level 2

Level 3



Traded

on AIM

£'000

 

Listed

on LSE

£'000

Collective

investment

vehicles

£'000

 

 

Unquoted

£'000

Total

£'000

Opening book cost

63,764

 

3,429

36,557

55,121

158,871

Opening unrealised appreciation/(depreciation)

11,287

(3,395)

12,945

(2,003)

18,834

Opening fair value

75,051

34

49,502

53,118

177,705

Movements in the year:






 Purchases at cost

1,190

-

39,738

3,433

44,361

 Sale - proceeds

-

-

(22,500)

(1,301)

(23,801)

 -  realised gains on sales

-

-

-

1,301

1,301

Change in unrealised appreciation/ (depreciation)

1,414

(34)

3,193

(8,006)

(3,433)

Closing fair value

77,655

-

69,933

48,545

196,133

Closing book cost

64,954

3,429

53,795

58,554

180,732

Closing unrealised appreciation/(depreciation)

12,701

(3,429)

16,138

(10,009)

15,401

Closing fair value

77,655

-

69,933

48,545

196,133

Equity shares

77,655

-

-

23,697

101,352

Preference shares

-

-

-

18,842

18,842

Loan notes

-

-

-

6,006

6,006

Collective investment vehicles

-

-

69,933

-

69,933

Closing fair value

77,655

-

69,933

48,545

196,133

 

 

6.         Other required disclosures

 

6.1        Segmental reporting

 

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

 

6.2           Principal risks and uncertainties

 

The Company's assets consist of equity and fixed interest investments, shares in collective investment schemes, cash and liquid resources. Its principal risks are therefore market risk, price risk, credit risk and liquidity risk. Other risks faced by the Company include loss of approval as a Venture Capital Trust, legislative, investment performance, economic, political and other external factors, regulatory and compliance and operational risks. These risks, and the way in which they are managed, are described in more detail in the principal risks and uncertainties table within the Strategic report section in the Company's Annual Report and Accounts for the year ended 30 September 2022. The Board continues to regularly review the risk environment in which the Company operates.

 

6.3          Related parties

 

Gresham House Asset Management Ltd (the "Manager") manages the investments of the Company. The Manager also provides or procures the provision of secretarial, accounting, administrative and custodian services to the Company. Under the management agreement, the Manager receives a fee of 2.5 per cent. per annum of the net assets of the Company. This is described in more detail under the heading 'The Investment Management Agreement' within the Strategic Report in the Company's Annual Report and Accounts for the year ended 30 September 2022. During the period the Company has incurred management fees of £2,480,000 (31 March 2022 - £2,822,000; 30 September 2022 - £5,468,000) and secretarial and accounting fees of £80,000 (31 March 2022 - £76,000; 30 September 2022 - £149,000) payable to the Manager. No performance fee has been accrued at 31 March 2023 (31 March 2022 - £nil; 30 September 2022 - £nil). This is described in more detail under the heading 'Performance fees' within the Strategic Report in the Company's Annual Report and Financial Statements for the year to 30 September 2022.

 

6.4          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. In arriving at this conclusion, the Directors have considered the Company's cash balances, the liquidity of the Company's investments and the absence of any gearing. The Directors are therefore also satisfied that the Company has adequate financial resources to continue in operation for at least the next 12 months and that, accordingly, it is appropriate to adopt the going concern basis in preparing the financial statements.

 

6.6          Post balance sheet events

 

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

·      The 30 April 2023 NAV of 62.3p was announced on 5 May 2023 and the 31 May 2023 NAV of 62.6p was announced on 6 June 2023. At the date of publishing this report, the Board is unaware of any matter that will have caused the NAV per share to have changed significantly since the latest NAV.

·      19mn shares were issued on 3 April 2023 at allotment prices between 61.8p and 65.2p under the current offer.

·      Purchased 1.2mn Ordinary Shares of 10.0p on 5 April 2023 at a price of 57.0p per share to be held in Treasury.

·      Follow-on investment, into Airfinity Ltd, completed in April 2023 totalling £0.7mn.

·      Follow-on investment, into Panthera Biopartners, completed in June 2023 totalling £0.5mn.

·      Follow-on investments, into LF Gresham House UK Multi Cap Income Fund, completed in April and May 2023, totalling £0.5mn.

·      Follow-on investments, into LF Gresham House UK Smaller Companies Fund, completed in April and May 2023, totalling £4.5mn.

·      One new investment, into Dayrize B.V., completed in May 2023 totalling £0.8mn.

·      Partial realisation of MXC Capital in April, as part of a tender offer, realising proceeds of £0.02mn and making a return of 0.6x cost.

·      Partial realisations in Cerillion plc were made in April and May, realising proceeds of £0.7mn and making a return of 15.8x cost.

·      Received earn-out proceeds of £1.4mn from Pho in May 2023, which was realised in July 2021, making a total return of 3.1x cost.

·      Realised Evotix in May 2023, receiving proceeds of £0.8mn and making a return of 0.7x cost.

·      Received deferred proceeds of £0.4mn from Key Travel in May 2023, which was realised in May 2018, making a total return of 3.2x cost.

 

 

Corporate Information

 

Directors

Sarah Fromson (Chair)†

Malcolm Groat*

Graham McDonald

Tim Farazmand#

 

Secretary

Gresham House Asset Management Ltd

 

Registered Office

5 New Street Square

London EC4A 3TW

 

Investment Manager

Gresham House Asset Management Ltd

5 New Street Square

London EC4A 3TW

Tel: 020 7382 0999

 

Registered Number

04115341

 

 

 

 

 

 

 

 

 

 

 

 

Chair of the Nomination Committee.

* Senior Independent Director and Chair of the Audit & Risk Committee.

# Chair of the Management Engagement and Remuneration Committee.

Registrars and Transfer Office

Computershare Investor Services plc

The Pavilions

Bridgwater Road

Bristol BS99 6ZZ

Tel: 0800 923 1534

 

Brokers

Panmure Gordon & Co

One New Change

London EC4M 9AF

Tel: 020 7886 2500

 

Auditor

BDO LLP

55 Baker Street

LondonW1U 7EU

 

 

Solicitors

Dickson Minto

Broadgate Tower

20 Primrose Street

London EC2A 2EW

 

VCT Status Adviser

PricewaterhouseCoopers LLP

1 Embankment Place

London WC2N 6RH

 

Website

www.baronsmeadvcts.co.uk

 

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