TIDMBNS
RNS Number : 1738F
Baronsmead VCT 4 PLC
17 February 2015
Baronsmead VCT 4 plc
Annual Report and Accounts for the year ended 31 December
2014
Financial Headlines
-- Net asset value ("NAV") per share increased 4.4 per cent to
104.41p in the year ended 31 December 2014, before deduction of
dividends.
-- NAV total return to shareholders for every 100.0p invested at
launch in November 2001 equals 209.5p.
-- Dividends totalled 9.0p for the year ended 31 December 2014.
-- Net annual dividend yield of 10.1 per cent and gross annual yield of 13.5 per cent.
Our Investment Objective
Baronsmead VCT 4 is a tax efficient listed company which aims to
achieve long-term investment returns for private investors.
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.
The full investment policy can be found in the full Annual
Report and Accounts.
Dividend Policy
The Board of Baronsmead VCT 4 has the objective to sustain a
progressive dividend policy for shareholders but this depends
primarily on the level of profitable realisations and it cannot be
guaranteed. There may be variations in the amount of dividends paid
year on year.
Chairman's Statement
A number of profitable realisations enabled the Directors to pay
increased dividends totalling 9.0p per share during the year. The
Net Asset Value increased by 4.35p per share to 104.41p per share,
before payment of dividends.
Results
The increase in the NAV and the dividends paid over the year can
be summarised as follows:
p per
ordinary
share
------------------------- ----------
NAV as at 1 January
2014 100.06
------------------------- ----------
Valuation uplift (4.35
per cent.) 4.35
------------------------- ----------
104.41
------------------------- ----------
Interim dividend paid
on 7 March 2014 (6.00)
------------------------- ----------
Second interim dividend
paid on 19 September
2014 (3.00)
------------------------- ----------
NAV as at 31 December
2014 95.41
------------------------- ----------
Profits from the divestment of some of the older unquoted
investments and a number of quoted investments, enabled Interim
dividend payments of 6.0p in March 2014 and 3.0p in September 2014.
The 9p dividend should be compared with the 7p per share paid in
the last 7 years and equates to an annual yield of 10.1 per cent
based on the 31 December 2014 mid price of 89.0p per share. For
higher rate taxpayers this is the equivalent of a yield of 13.5 per
cent.
The value of the unquoted portfolio rose by 8.1 per cent
including income received on the sale of investments. The value of
the quoted portfolio was also up by 8.1 per cent despite the
re-emergence of volatility in quoted markets during the later part
of the year.
Long Term Investment Performance
The Company's investment and dividend policies are aimed at
producing consistent returns over the long-term. The NAV total
returns for each 100p invested in Baronsmead VCT 4 over five and
ten years and since launch to 31 December 2014 were 152.8p, 183.8p
and 209.5p respectively. Cumulative tax free dividends per share
over the same periods have totalled 37.0p, 68.5p and 75.0p
respectively.
The chart in the full Annual Report and Accounts shows the cash
returned to investors in the original and subsequent fundraisings
based on the subscription price and the income tax rebate. The full
record of performance is set out in the appendices in the full
annual report accounts and on our website,
www.baronsmeadvct4.co.uk.
Portfolio
This has been the second successive year of strong portfolio
realisations. In the year to 31 December 2014, the Company realised
gross proceeds of approximately GBP15m. There was a particular
focus on the quoted portfolio to crystallise some of the gains in
the more liquid market available in 2014 and sales totalled GBP4.0m
(2013: GBP2.9m).
Realisations in the year to 31 December 2014 equate to
approximately 28 per cent of the value of the investment portfolio
at the beginning of the year (2013: 36 per cent).
Details of the significant investments can be found in the
Manager's Review below and the most significant realisations in the
table below.
During the year under review, the Company invested approximately
GBP6.2m in 10 new and 8 follow-on investments in existing portfolio
companies. The table below in the Manager's Review provides a
summary of these new and follow-on investments. As a result, at the
year end, there were 65 companies in the unquoted and quoted
portfolio.
As a result of a high level of timely unquoted realisations over
the last two years the proportion of the Company's assets in
unquoted investments is at a cyclical low but is expected to grow
in value from the maturing of our young portfolio and new
investments.
Management Arrangements
As reported in my statement for the six months to 30 June 2014,
in consideration of the impact on your Company of the Alternative
Investment Fund Managers Directive ("AIFMD"), an EU Directive that
came into force in July 2013, the Board took professional advice on
the most appropriate course of action to adopt. As a result, on 22
July 2014 the Company became an Alternative Investment Fund Manager
("AIFM"), taking advantage of the scope of the legislation which
provides that ("AIFMs") which manage assets under EUR500m can take
advantage of a "light touch" regime which only imposes minimal
additional reporting on the AIFM thereby minimising the cost of
compliance with this Directive.
This development will not impact on the day to day investment
activities. As a consequence the Investment Management Agreement
has been redrawn to Livingbridge VC LLP, a partnership which is
controlled and managed by the same individuals as our previous
manager Livingbridge EP LLP (formerly ISIS EP LLP). Many
shareholders will have read about the change of name which the
manager effected during the year from ISIS to Livingbridge. The
Board would like to thank those involved in advising the Board on
this matter.
Annual Report
Shareholders will note that the over the past two years the
Annual Report and Accounts have been revised as a result of new
reporting requirements designed to simplify the notes to the
accounts and to improve their clarity and overall appearance.
Annual General Meeting
I look forward to meeting as many shareholders as possible at
our thirteenth Annual General Meeting to be held on Thursday, 16
April 2015 at Saddlers' Hall, 40 Gutter Lane, London, EC2V 6BR at
1.00pm. As well as my own review of the year, there will be
presentations from the Manager.
Outlook
The improving UK economy evident throughout most of 2014 abated
towards the year end and we face a more uncertain outlook for 2015.
Concerns over currency fluctuations, a lack of growth in Europe,
China and the emerging economies, political instability in various
regions and the prospects for the outcome of the forthcoming
General Election have contributed to the current volatility in
quoted markets.
The investment portfolio continues to evolve following recent
sales and new investments. The younger unquoted investment
portfolio is expected to grow more modestly during the initial
period following our investment. However, the Manager's direct
involvement will help them to deliver increasing profits,
employment and consequently future profitable realisations. The
process of crystallising the gains in the value of the quoted
portfolio will continue as and when opportunities arise.
Robert Owen
Chairman
17 February 2015
Manager's Review
The year has seen a second successive period of strong
divestment, with a greater proportion than normal being realised
from the quoted portfolio following good valuation uplifts over the
last few years. The total level of new investment was somewhat
lower than the prior year but five new unquoted and five new quoted
investee companies have been added to the portfolio.
We have seen a solid performance from both the unquoted and
quoted portfolios which are both up 8 per cent. This performance
was achieved despite the volatility seen in the quoted markets
during the last quarter of the year.
PORTFOLIO REVIEW
Overview
The net assets of GBP71.1 million were invested as follows:
NAV % of Number of % return
(GBPm) NAV investees in the
Asset class year
------------------- -------- ----- ----------- ---------
Unquoted 24.3 34 22 8
------------------- -------- ----- ----------- ---------
Quoted 24.1 34 43 8
------------------- -------- ----- ----------- ---------
Other Net Assets 22.7 32 - -
=================== ======== ===== =========== =========
Each quarter the direction of general trading and profitability
of all investee companies is recorded so that the Board can monitor
the overall health and trajectory of the portfolio. At 31 December
2014, 83 per cent of the 65 companies in the portfolio were
progressing steadily or better.
The tables below show the breakdown of new investments and
realisations over the course of the year and are followed by
commentary on some of the key highlights in both the unquoted and
quoted portfolios.
Investments in the year
Book cost
Company Location Sector Activity GBP'000
======================== ================= ================= ====================================== =========
Unquoted investments
New
=================================================================================================================
Provider of Field Force Automation
Kirona Ltd Cheshire TMT* software and services 955
======================== ================= ================= ====================================== =========
Unified communications ('UC')
IP Solutions Ltd London TMT* provider 954
======================== ================= ================= ====================================== =========
Upper Street Events Consumer Consumer events owner and
Ltd London Markets operator 953
======================== ================= ================= ====================================== =========
Business
Kingsbridge Ltd Gloucestershire Services Independent insurance broker 952
======================== ================= ================= ====================================== =========
CR7 Services Ltd Kent TMT* Provider of payment services 949
======================== ================= ================= ====================================== =========
Follow on
======================== ================= ================= ====================================== =========
Provider of nursery based
Happy Days Consultancy Healthcare childcare in the South West
Ltd Newquay & Education of England 219
======================== ================= ================= ====================================== =========
Independent Community
Care Management Healthcare High acuity care for home
Ltd Kettering & Education based users 12
======================== ================= ================= ====================================== =========
Nexus Vehicle Holdings Business
Ltd West Yorkshire Services Vehicle rental broker 8
======================== ================= ================= ====================================== =========
Consumer Restaurant group specialising
Pho Holdings Ltd London Markets in Vietnamese street food 4
======================== ================= ================= ====================================== =========
Total unquoted investments 5,006
====================================================================================================== =========
AIM-traded investments
New
=================================================================================================================
Scholium Group Consumer Rare book and collectibles
plc London Markets dealer 450
======================== ====================== ============ ====================================== =========
Crawshaw Group Consumer
plc Rotherham Markets Value meat retailer 200
======================== ====================== ============ ====================================== =========
Synety Group plc Leicester TMT* Cloud based telephony platform 113
======================== ====================== ============ ====================================== =========
Castleton Technology Public sector IT managed services
plc Cambridge TMT* and software 68
======================== ====================== ============ ====================================== =========
Gresham House plc London TMT* Investment Trust vehicle 56
======================== ====================== ============ ====================================== =========
Follow on
======================== ====================== ============ ====================================== =========
Plastics Capital Business Specialist plastic products
plc London Services buy and build 131
======================== ====================== ============ ====================================== =========
Daily Internet SME Domain registration and
plc Stockport TMT* hosting 115
======================== ====================== ============ ====================================== =========
One Media iP Group
plc Buckinghamshire TMT* Content acquisition and distribution 57
======================== ====================== ============ ====================================== =========
EG Solutions plc
Loan note Staffordshire TMT* Back office optimisation software 33
======================== ====================== ============ ====================================== =========
Total AIM-traded investments 1,223^
====================================================================================================== =========
Total investments in the year 6,229
====================================================================================================== =========
* Technology, Media & Telecommunications ("TMT").
^ Fulcrum Utility Services Ltd and Paragon Entertainment Ltd shares
were received in exchange for Marwyn Value Investors Ltd shares following
a Scheme of Arrangement.
=================================================================================================================
Realisations in the year
First Overall
investment Book cost Proceeds++ multiple
Company date GBP'000 GBP'000 return*
========================= ============= ============ ========= ========== =========
Unquoted realisations
========================================================================================
Nexus Vehicle Holdings
Ltd Redemption Feb 08 2,130 3,082 1.4
========================= ============= ============ ========= ========== =========
Inspired Thinking Full trade
Group Ltd sale May 10 796 2,315 3.4
========================= ============= ============ ========= ========== =========
Quest Venture Partners
Ltd Dissolved Sep 11 1,000 1,000 1.0
========================= ============= ============ ========= ========== =========
Arcas Investments
Ltd Dissolved Sep 11 1,000 998 1.0
========================= ============= ============ ========= ========== =========
Riccal Investments
Ltd Dissolved Apr 12 1,000 997 1.0
========================= ============= ============ ========= ========== =========
HealthTech Innovation
Partners Ltd Dissolved Sep 11 1,000 996 1.0
========================= ============= ============ ========= ========== =========
CableCom Networking
Holdings Ltd Redemption May 07 0 811 4.8
========================= ============= ============ ========= ========== =========
Playforce Holdings Full trade
Ltd sale Jan 08 1,196 375 0.5
========================= ============= ============ ========= ========== =========
Surgi C Ltd Redemption Apr 10 248 325 0.2
========================= ============= ============ ========= ========== =========
Kingsbridge Ltd Redemption Jan 14 53 96 1.8
========================= ============= ============ ========= ========== =========
Empire World Trade Full trade
Ltd sale Aug 06 1,297 25 0.0
========================= ============= ============ ========= ========== =========
Music Festivals plc
Loan note Write-off Jun 11 400 9 0.0
========================= ============= ============ ========= ========== =========
Total unquoted realisations 10,120 11,029
====================================================== ========= ========== =========
AIM-traded & listed realisations
========================================================================================
Jelf Group plc Market sale Oct 04 211 737 3.5
========================= ============= ============ ========= ========== =========
Full market
Vectura Group plc sale Mar 02 245 721 2.9
========================= ============= ============ ========= ========== =========
Chime Communications Full market
plc sale Nov 09 369 560 1.7
========================= ============= ============ ========= ========== =========
Sinclair IS Pharma Full market
plc sale Mar 08 524 546 1.0
========================= ============= ============ ========= ========== =========
Full market
GB Group plc sale Nov 11 150 543 3.6
========================= ============= ============ ========= ========== =========
Anpario plc Market sale Nov 06 69 284 4.1
========================= ============= ============ ========= ========== =========
Full market
Tristel plc sale Nov 10 217 281 1.3
========================= ============= ============ ========= ========== =========
Cohort plc Market sale Oct 07 131 209 1.6
========================= ============= ============ ========= ========== =========
Bglobal plc Write-off Jun 10 176 51 0.3
========================= ============= ============ ========= ========== =========
Inspired Energy plc Market sale Nov 11 13 49 3.9
========================= ============= ============ ========= ========== =========
Total AIM-traded & listed realisations 2,105^ 3,981
====================================================== ========= ========== =========
Total realisations in the year 12,225 15,010
====================================================== ========= ========== =========
++ Proceeds at time of realisation including redemption premium and
interest.
* Includes interest/dividends received, loan note redemptions and partial
realisations accounted for in prior periods.
^ Fulcrum Utility Services Ltd and Paragon Entertainment Ltd shares
were received in exchange for Marwyn Value Investors Ltd shares following
a Scheme of Arrangement.
Proceeds of GBP14,000 were also received in respect of Quantix Ltd
and GBP27,000 in respect of Reed & Mackay Ltd, both of which had been
sold in a prior period. Deferred consideration of GBP57,000 was also
received in respect of CSC (World) Ltd and GBP156,000 in respect of
MLS Ltd.
========================================================================================
Unquoted Portfolio
The unquoted portfolio performance has increased steadily by
around 8 per cent over the course of this year including
capitalised interest and redemption premium income received on the
sale of investments. This relatively modest growth from the
unquoted portfolio reflects the fact that many of the older
investments where the Manager has been able to complete the planned
investment strategy have been successfully divested. Hence, a
greater portion of the current unquoted portfolio is skewed towards
newer investments which are still in their development phase.
The unquoted portion of the portfolio is valued using a
consistent process every three months which the Board oversees and
approves. The majority of the value creation in unquoted
investments comes from operational improvements (revenue and margin
growth), rather than financial leverage.
Unquoted Investment Activity
During the year, GBP5.0 million was invested in 9 unquoted
companies including 5 new additions to the portfolio. The new
unquoted investments were;
-- Kingsbridge is a top 100 independent insurance broker. It has
a specialist business to business (B2B) advisory business focusing
on the water industry, environmental risks and professional
services. It also has a fast growing division called KPSol which
provides business insurance services to contractors, freelancers
and self employed professionals in professions such as engineering
and IT. The Livingbridge investment will support the growth of the
KPSol division including new product development and management
team development.
-- CR7 Services ("CR7") has a UK operating division called
Optomany. CR7 is led by an experienced team of executives who have
achieved success before in the international field of card payment
processing. Optomany has developed a new advanced payment
processing platform for merchants accepting card payments which is
new to the UK market. The investment by Livingbridge has enabled
CR7 to make an acquisition of another company, 123 Send, which will
form a second division for the group. 123 Send is a major UK
provider of point of sale card terminals and services, with an
estate of 15,000 terminals placed in 11,000 merchants.
-- IP Solutions is a value added reseller of unified
communications. There is a growing trend for companies to outsource
their procurement of telecomm services such as mobile; landlines or
VOIP; broadband and video conference to a single supplier rather
than having to manage multiple suppliers in increasingly technical
areas. IP Solutions offers a cloud hosted solution combining best
of breed partners for all these services and support to corporate
users. Livingbridge will support future growth at the company in
this developing market.
-- Kirona supplies software that enables field-based operatives
to work much more efficiently for their organisations. Field based
workers via their mobile devices benefit from better scheduling,
workflow management and completing admin on the move. Over 25,000
workers use Kirona applications in areas such as local government,
social housing, healthcare and utilities. The business can continue
to grow as more companies see the efficiency benefits from using
Kirona solutions.
-- Upper Street Events is one of the UK's leading owners and
operators of consumer facing events with a wide range of events
including the Knitting & Stitching Show, Gadget Show, Cycle
Show, London Art Fair and the Country Living Shows. Livingbridge
will support Upper Street to continue growing by launching new
events and selected acquisitions to add to its strong established
stable.
Unquoted Divestment Activity
Along with the dissolution of four acquisition vehicles there
were three realisations, four loan note redemptions and one
write-off which yielded proceeds of approximately to GBP11m for
Baronsmead VCT 4.
-- The investment in Inspired Thinking Group ("ITG") has been
realised via a secondary MBO supported by a larger private equity
fund. ITG was originally backed in 2010 to fund an acquisition of a
workflow software solution that the company was using extensively
in its clients. ITG supplies the workflow software and related
services to the marketing departments of consumer brands and high
street retailers. During the investment period sales grew from
GBP14m to GBP43m by 2013 and the exit delivered a return on cost of
3.4x.
-- Livingbridge has completed a refinancing at vehicle rental
business Nexus Vehicle Holdings ("Nexus") resulting in a successful
partial realisation. Since Livingbridge invested in 2008, Nexus has
grown profits strongly and the investment had grown in value. The
business has taken on a sensible bank debt package that has enabled
it to return a total of GBP12.3m to the Baronsmead family in early
loan note repayment and associated yield (GBP3.1m for Baronsmead
VCT 4). The equity investment is still retained and Livingbridge
will continue to support the future growth of the business.
-- Following a period of strong realisations, there are also
three less successful exits to report. Playforce Holdings
(playgrounds for schools) has been sold to a trade buyer recovering
0.5x times the original investment. Empire World Trade (importing
and distribution of top fruit) has been sold to a larger trade
buyer with nominal recovery.Surgi C (spinal surgical implants) has
also been partially realised recovering 0.2x the original cost.
It is disappointing to have two poor realisations in one
financial period. The last financial year to December 2013 was a
strong year of exit results. If we aggregate the realisations over
the last two financial years, the overall realisation generated
GBP19.3m for this VCT at an average multiple of 2.3x cost.
Quoted Portfolio (AIM traded investments)
This has been another positive year with an uplift in the quoted
portfolio of 8 per cent building on the very strong positive
movements over the last two years. The performance of the quoted
portfolio also reflects the changes introduced by the Livingbridge
Quoted Investment Team since 2009. As outlined in last year's
report a number of more significant holdings have now been built
where the team has a closer, more influential relationship and can
utilise some of the good practice from Private Equity experience
and the results from this approach are starting to come
through.
Whilst it is expected that work in the quoted arena will deliver
future positive growth over the long term, the high annual growth
rates achieved over the last three years have been helped by the
fact we have emerged from a recession.
Quoted Investment Activity
The level of new quoted investment for Baronsmead VCT 4 of
GBP1.2 million was made across 5 new and 4 follow on
investments:
The level of new investment was relatively subdued compared to
previous years as the focus of activity was directed towards
realising profits from the quoted portfolio. Investment activity
was mainly in two categories: relatively small new investments
where the Manager is seeking to build a relationship with
management and potentially add to the holding over time; and follow
on investments into existing investee companies to support growth
initiatives. Both types of investment reflect the Manager's
progressive investment strategy for the quoted portfolio.
Quoted Divestment Activity
Proceeds from realisations during the year from the quoted
portfolio totalled GBP4.0 million and delivered an aggregate return
of 1.9x cost. Notably within this is the full realisation of
Vectura Group (2.9x cost) which had been held by Baronsmead VCT 4
as both an unquoted and quoted investment, the full realisation of
GB Group (3.6x cost) and the partial sales in the market of Jelf
Group (at 3.5x cost) and Anpario (4.1x cost).
The Investment Manager has pursued a deliberate policy of
realising a higher than normal level of quoted investments to take
advantage of strong pricing and improved liquidity during the
course of 2014 which can often be a constraint when looking to
divest stakes in smaller quoted companies.
Liquid assets (cash and near cash)
Baronsmead VCT 4 had cash and near cash resources of
approximately GBP22.9 million at the year end. This higher than
normal level reflects both the proceeds from the fund raising in
early 2014 and proceeds from high levels of divestment in both the
quoted and unquoted portfolios. This asset class is conservatively
managed to take minimal or no capital risk, a strategy outlined in
prospectuses that have been issued in the past.
OUTLOOK
Following a period of gradual recovery and improving confidence
in the UK economy we believe there are more settled conditions for
finding and growing good businesses. However, we remain cautious
due to the potential impact of global events and the uncertainty
likely to be caused by a UK General Election in 2015. We have
already seen increased volatility in quoted markets in recent
months and continue to monitor the external environment
carefully.
Livingbridge seeks to invest in businesses that have strong
potential for growth but that are also more resilient to general
economic conditions as their growth strategies are based more on
innovative propositions rather than overall GDP growth. We work
closely with these businesses to help them develop their strategy
and operational infrastructure to prepare for external challenges.
Hence, we believe that Baronsmead VCT 4's diversified portfolio is
well positioned to continue its progress in the current market.
Livingbridge VC LLP
Investment Manager
17 February 2015
Summary Investment Portfolio
Investment Diversification at 31 December 2014
Sector by value
Business Services 33%
Consumer Markets 19%
Healthcare & Education 12%
Technology, Media &
Telecommunications 36%
Total assets by value
Unquoted - loan note 25%
Unquoted - equity 9%
AIM 34%
Listed Interest bearing
securities 15%
Net current assets (principally
cash) 17%
Time Investments held
by value
Less than 1 year 12%
Between 1 and 3 years 29%
Between 3 and 5 years 25%
Greater than 5 years 34%
Ten Largest Investments
The top ten investments by current value at 31 December 2014
illustrate the diversity and size of investee companies within the
portfolio. This financial information is taken from publicly
available information, which has been audited by the auditors of
the investee companies.
1. Netcall plc - Hemel Hempstead
Quoted
All funds managed by Livingbridge
First investment: July 2010
Total cost: GBP4,354,000
Total equity held: 18.02%
Baronsmead VCT 4 only
Cost: GBP868,000
Valuation: GBP3,318,000
Valuation basis: Bid Price
% of equity held: 3.61%
Year ended 30 June
2014 2013
------------------ ------------ ------------
GBP million GBP million
------------------ ------------ ------------
Sales: 16.9 16.1
------------------ ------------ ------------
EBITA: 4.9 3.9
------------------ ------------ ------------
Net Assets: 20.2 16.9
------------------ ------------ ------------
No of Employees: 146 141
------------------ ------------ ------------
(Source: Netcall plc, Annual Report and Accounts, 30 June
2014)
2. Nexus Vehicle Holdings Ltd - Leeds
Unquoted
All funds managed by Livingbridge
First investment: February 2008
Total cost: GBP1,013,000
Total equity held: 62.11%
Baronsmead VCT 4 only
Cost: GBP245,000
Valuation: GBP2,502,000
Valuation basis: Earnings Multiple
% of equity held: 13.67%
Year ended 30 September
2013 2012
------------------ ------------ ------------
GBP million GBP million
------------------ ------------ ------------
Sales: 41.3 36.5
------------------ ------------ ------------
EBITA: 2.6 3.3
------------------ ------------ ------------
Net Assets: 1.5 1.8
------------------ ------------ ------------
No of Employees: 130 113
------------------ ------------ ------------
(Source: Nexus Vehicle Holdings Ltd, Report & Financial
Statements 30 September 2013)
3. Crew Clothing Holdings Ltd - London
Unquoted
All funds managed by Livingbridge
First investment: November 2006
Total cost: GBP5,833,000
Total equity held: 25.51%
Baronsmead VCT 4 only
Cost: GBP1,454,000
Valuation: GBP2,464,000
Valuation basis: Earnings Multiple
% of equity held: 6.08%
Year ended 28 October
2013 2012
------------------ ------------ ------------
GBP million GBP million
------------------ ------------ ------------
Sales: 52.7 48.5
------------------ ------------ ------------
EBITA: 1.3 3.5
------------------ ------------ ------------
Net Assets: 6.0 6.0
------------------ ------------ ------------
No of Employees: 381 363
------------------ ------------ ------------
(Source: Crew Clothing Holdings Ltd, Report and Financial
Statements 28 October 2013)
4. Accumuli plc - Salford
Quoted
All funds managed by Livingbridge
First investment: November 2010
Total cost: GBP2,707,000
Total equity held: 23.10%
Baronsmead VCT 4 only
Cost: GBP505,000
Valuation: GBP1,829,000
Valuation basis: Bid Price
% of equity held: 4.20%
Year ended 31 March
2014 2013
----------------- ------------ ------------
GBP million GBP million
----------------- ------------ ------------
Sales: 16.6 14.1
----------------- ------------ ------------
EBITA: 2.6 2.0
----------------- ------------ ------------
Net Assets: 15.1 14.6
----------------- ------------ ------------
No of Employees
: 73 55
----------------- ------------ ------------
(Source: Accumuli plc, Annual Report and Accounts 2014)
5. IDOX Plc - London
Quoted
All funds managed by Livingbridge
First investment: May 2002
Total cost: GBP1,641,000
Total equity held: 4.89%
Baronsmead VCT 4 only
Cost: GBP413,000
Valuation: GBP1,827,000
Valuation basis: Bid Price
% of equity held: 1.30%
Year ended 31 October
2014 2013
------------------ ------------ ------------
GBP million GBP million
------------------ ------------ ------------
Sales: 60.7 57.3
------------------ ------------ ------------
EBITA: 15.6 14.3
------------------ ------------ ------------
Net Assets: 48.6 44.7
------------------ ------------ ------------
No of Employees: 554 558
------------------ ------------ ------------
(Source: IDOX Plc Annual Report and Accounts 2014)
6. Create Health Ltd - London
Unquoted
All funds managed by Livingbridge
First investment: March 2013
Total cost: GBP4,750,000
Total equity held: 29.00%
Baronsmead VCT 4 only
Cost: GBP1,065,000
Valuation: GBP1,775,000
Valuation basis: Earnings Multiple
% of equity held: 5.74%
Year ended 31 March
2014 2013
----------------- ------------ ------------
GBP million GBP million
----------------- ------------ ------------
Sales: 4.9 4.2
----------------- ------------ ------------
EBITA: # #
----------------- ------------ ------------
Net Assets: 3.3 2.3
----------------- ------------ ------------
No of Employees 58 #
:
----------------- ------------ ------------
(Source: Create Health Ltd Abbreviated Accounts 31 March
2014)
# not disclosed
7. Luxury for Less - Warwickshire
Unquoted
All funds managed by Livingbridge
First investment: June 2013
Total cost: GBP8,458,000
Total equity held: 40.00%
Baronsmead VCT 4 only
Cost: GBP955,000
Valuation: GBP1,621,000
Valuation basis: Offer
% of equity held: 3.96%
Year ended 31 December
2013 2013 (March)
----------------- ------------ -------------
GBP million GBP million
----------------- ------------ -------------
Sales: 9.6 #
----------------- ------------ -------------
EBITA: (1.1) #
----------------- ------------ -------------
Net Assets: 9.4 #
----------------- ------------ -------------
No of Employees: 95 #
----------------- ------------ -------------
(Source: Annual Report and Financial Statement 31 December 2013,
9 months of accounts Mar - Dec)
# No comparable information available
8. Tasty plc - London
Quoted
All funds managed by Livingbridge
First investment: September 2006
Total cost: GBP3,223,000
Total equity held: 14.52%
Baronsmead VCT 4 only
Cost: GBP595,000
Valuation: GBP1,500,000
Valuation basis: Bid Price
% of equity held: 2.53%
Year ended 29 December
2013 2012
------------------ ------------ ------------
GBP million GBP million
------------------ ------------ ------------
Sales: 23.2 19.3
------------------ ------------ ------------
EBITA: 1.9 1.6
------------------ ------------ ------------
Net Assets: 17.4 12.3
------------------ ------------ ------------
No of Employees: 506 453
------------------ ------------ ------------
(Source: Tasty Plc, Report and Financial Statements 29 December
2013)
9. Pho Holdings Ltd - London
Unquoted
All funds managed by Livingbridge
First investment: July 2012
Total cost: GBP4,415,000
Total equity held: 28.00%
Baronsmead VCT 4 only
Cost: GBP991,000
Valuation: GBP1,375,000
Valuation basis: Earnings Multiple
% of equity held: 5.54%
Year ended 23 February
2014 2013
------------------ ------------ ------------
GBP million GBP million
------------------ ------------ ------------
Sales: 9.7 8.2
------------------ ------------ ------------
EBITA: 0.4 0.6
------------------ ------------ ------------
Net Assets: 1.6 1.5
------------------ ------------ ------------
No of Employees: 205 154
------------------ ------------ ------------
(Source: Directors' Report and Financial Statements 23 February
2014)
10. Independent Community Care Management Ltd - Kettering
Unquoted
All funds managed by Livingbridge
First investment: October 2011
Total cost: GBP6,070,000
Total equity held: 70.00%
Baronsmead VCT 4 only
Cost: GBP1,358,000
Valuation: GBP1,344,000
Valuation basis: Earnings Multiple
% of equity held: 13.86%
Year ended 31 March
2014 2013
----------------- ------------ ------------
GBP million GBP million
----------------- ------------ ------------
Sales: 9.8 8.4
----------------- ------------ ------------
EBITA: 0.3 0.2
----------------- ------------ ------------
Net Assets: 0.8 0.5
----------------- ------------ ------------
No of Employees
: 441 390
----------------- ------------ ------------
(Source: ICCM Ltd, Directors' report and financial statements 31
March 2014)
Risk Matrix
Principal Risk Context Specific risks Possible impact Mitigation
---------------------- ---------------------- ---------------------- ---------------------- ----------------------
Loss of approval as The Company must Breach of any of the The loss of VCT The Board maintains
a Venture Capital comply with section rules enabling the status would result a safety margin on
Trust 274 of the Income Company to hold VCT in shareholders who all VCT tests to
Tax Act 2007 which status could result have not held their ensure that breaches
enables its in the loss shares for the are very unlikely
investors of that status. designated holding to be caused by
to take advantage of period having to unforeseen events or
tax relief on their repay the income tax shocks. The
investment and on relief they had Investment Manager
future returns. already obtained monitors all of the
and future dividends VCT
and gains would be tests on an ongoing
subject to income basis and the Board
tax and capital reviews the status
gains tax. of these tests on a
quarterly basis.
Specialist advisors
audit the tests on a
bi-annual basis and
report to the audit
committee
on their findings.
---------------------- ====================== ====================== ---------------------- ----------------------
Investment The Company invests Investment in poor Reduction in both The Company has a
performance in small, mainly UK quality companies the capital value of diverse portfolio
based companies, with the resultant investors where the cost of
both unquoted and risk of a high level shareholdings and in any one investment
quoted. Smaller of failure in the level of income is typically less
companies often have the portfolio. distributed. than 5% of NAV
limited product thereby limiting the
lines, markets or impact of any one
financial resources failed investment.
and may be dependent The Board has
for their management appointed
on a smaller number an Investment
of key individuals Manager that has a
and hence tend to be strong and
riskier than consistent track
larger businesses. record over a long
period, invests
in profitable
companies in sectors
in which it has
specialised for the
past 16 years,
undertakes
extensive due
diligence on all
prospective
investments, has an
experienced value
enhancement
team who actively
manage its
investments and who
take board seats and
appoint experienced
non executive
Directors on all
unquoted and
significant quoted
investments.
---------------------- ====================== ====================== ====================== ======================
Regulatory & The Company is Failure of the The Company's The Board and the
Compliance authorised as a self Company to comply performance could be Investment Manager
managed Alternative with any of its impacted severely by employ the services
Investment Fund regulatory or legal financial penalties of leading
Manager under the obligations could and a loss of regulatory lawyers,
Alternative result reputation resulting sponsors,
Investment Fund in the suspension of in the alienation of auditors and other
Managers Directive its listing by the shareholders, a advisers to ensure
and is also subject UKLA and/or significant demand the company complies
to the Prospectus financial penalties to buy back shares with all of its
and Transparency and sanction by the and an inability to regulatory
Directives. It is regulator or a attract future obligations.
required to comply qualified audit investment. The The Board has strong
with the Companies report. suspension of its systems in place to
Act 2006 and the shares would result ensure that the
UKLA listing Rules. in Company complies
the loss of its VCT with all of its
taxation status and regulatory
most likely the responsibilities.
ultimate liquidation The Investment
of the Company. Manager has a strong
compliance culture
and employs
dedicated compliance
specialists within
its team who support
the Board in
ensuring that the
Company is
compliant.
---------------------- ====================== ====================== ====================== ======================
Legislative VCTs were A change in The Company might The Board and the
established in 1995 government policy not be able to Investment Manager
to encourage private regarding the maintain its asset engage on a regular
individuals to funding of small base leading to its basis with HMT and
invest in early companies or changes gradual decline and industry
stage companies made to potentially an representative
that are considered VCT regulations to inability to bodies to
to be risky and comply with EU State maintain either its demonstrate the cost
therefore have Aid rules could buy back or dividend benefit of VCTs to
limited funding result in a policies. the economy in terms
options. In return cessation of the tax of employment
the reliefs generation
state provides these for VCT investors or and taxation
investors with tax changes to the revenue. In addition
reliefs which fall reliefs that make the Board and the
under the definition them less attractive Investment Manager
of state aid. to investors. 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.
---------------------- ====================== ====================== ---------------------- ----------------------
Economic, political Whilst the Company Events such as Reduction in the The Company invests
and external factors invests in economic recession, value of the in a diversified
predominantly UK movement in interest Company's assets portfolio of
businesses, it or currency rates, with a corresponding companies across a
relies heavily on civil unrest, war impact on its share number of industry
Europe as or political price sectors
one of its largest uncertainty or may result in the which provides
trading partners. pandemics can loss of investors protection against
This together with adversely affect the through buy backs shocks as the impact
the increase in trading environment and may limit its on individual
globalisation means for underlying ability to pay sectors can vary
that economic unrest investments and dividends. depending
and shocks in other impact on their upon the
jurisdictions, as results and circumstances. In
well as in the UK, valuations. addition, the
can impact on Manager uses a
UK companies, limited amount of
particularly smaller bank gearing in
ones that are more its investments
vulnerable to which enables its
changes in trading investments to
conditions. continue trading
through difficult
economic
conditions. The
Company always
maintains healthy
cash balances so
that it can support
portfolio
companies with
further investment
should the
investment case
support it. The
Board reviews
the make up and
progress of the
portfolio each
quarter to ensure
that it remains
appropriately
diversified and
funded.
---------------------- ====================== ====================== ---------------------- ----------------------
Operational The Company relies The risk of failure Errors in The Board has
on a number of third of the systems and shareholders records appointed an audit
parties including controls of any of or shareholdings, committee who, along
the Investment the Company's incorrect marketing with the external
Manager to provide advisers leading to literature, non auditors, review the
it with the an inability to compliance internal control
necessary services service shareholder with listing rules, (ISAE3402) and/or
such as registrar, needs adequately, to loss of assets, internal audit
sponsor, custodian, provide accurate breach of legal reports from all
receiving agent, reporting and duties and inability significant third
lawyers accounting to provide accurate party
and tax advisers. and to ensure reporting and service providers,
adherence to all VCT accounting all including the
legislation rules. leading to Investment Manager,
reputational risk on a bi-annual basis
and the potential to ensure that they
for litigation. have strong systems
and controls in
place including
Business Continuity
Plans. The Board
regularly
reviews the
performance of its
service providers to
ensure that they
continue to have the
necessary expertise
and resources to
provide a high class
service and always
where there has
been any changes in
key personnel or
ownership.
====================== ====================== ====================== ---------------------- ----------------------
The financial risks faced by the Company are covered within the
notes to the Financial Statements below.
Business Model
Baronsmead VCT 4 has maintained the appointment of Livingbridge
as Investment Manager to help achieve the investment objective of
the Company. The key elements of the investment strategy and its
application are outlined below.
Access to an attractive, diverse portfolio
Baronsmead VCT 4 plc gives shareholders access to a diverse
portfolio of growth businesses, both unquoted and AIM-traded
companies.
Each business has already demonstrated profitable success from
its business model before investment to provide a degree of
stability and a foundation from which to build. Each business is
led by an entrepreneurial management team that are aspiring to
achieve above average growth from attractive and differentiated
market positions.
The Manager's approach to investing
The Manager, Livingbridge, aspires to select the best
opportunities and has a distinctive selection criteria based
on;
-- Businesses that demonstrate elements of market leadership in their niche
-- Management teams that can develop and deliver profitable and sustained growth
-- The company being able to be an attractive asset appealing to
a range of buyers at the appropriate time to exit
In order to ensure there is a strong pipeline of opportunities,
Livingbridge invests in sector knowledge and networks. It then
undertakes significant pro-active marketing to interesting unquoted
targets in preferred sectors. This is building a database of
businesses that are keen to maintain a relationship with
Livingbridge ahead of possible investment opportunities.
Livingbridge as an influential shareholder
For unquoted investments, Livingbridge is an involved
shareholder (on behalf of the Baronsmead family of VCTs) and
representatives of the Manager join the investee board. The role of
Livingbridge is to ensure that strategy is clear, the business plan
is well thought through and the management resources are in place
to deliver profitable growth. The intention is to build on the
initial platform and grow the business so that it can become an
attractive target able to be either sold or floated in the medium
term.
The investment strategy for AIM-traded companies has
increasingly focused on taking more influential stakes through the
collective shareholdings of the Baronsmead family of VCTs.
Other Matters
Applying the Business Model
The Company's investment objective and investment policy are set
out above. This section of the Strategic Report sets out the
practical steps that the Board has taken in order to achieve the
investment objective and adhere to the investment policy.
Appointment of the right Investment Manager
The Board has delegated the management of the investment
portfolio to Livingbridge VC LLP ("Livingbridge" or the
"Manager").
The Manager has adopted a 'top-down, sector-driven' approach to
identifying and evaluating potential investment opportunities, by
assessing a forward view of firstly the business environment, then
the sector and finally the specific potential investment
opportunity.
Based on its research, the Manager has selected a number of
sectors that it believes will offer attractive growth prospects and
investment opportunities. Diversification is also achieved by
spreading investments across different asset classes and making
investments for a variety of different periods.
The Manager's Review above provides a review of the investment
portfolio and of market conditions during the year, including the
main trends and factors likely to affect the future development,
performance and position of the business.
On 22 July 2014 the Company was registered as a Small UK
registered Alternative Investment Fund Manager ("AIFM") under the
Alternative Investment Fund Managers Directive ("AIFMD"). In
preparation for this, the investment management agreement between
the Company and Livingbridge EP LLP (formerly ISIS EP LLP) dated 20
December 2006 was novated to Livingbridge VC LLP (previously named
ISIS VC LLP), a Markets in Financial Instruments Directive
("MiFID") authorised company with the same controlling members as
Livingbridge EP LLP. The terms of the agreement and the personnel
involved in providing management and investment management services
to the Company have not changed as a result of the implementation
of these arrangements.
The Board have also engaged the Manager to provide or procure
company secretarial, accounting and administrative services to the
Company.
Investing in the right companies
Investment securities
The Company invests in a range of securities including, but not
limited to, ordinary and preference shares, loan stocks,
convertible securities and fixed-interest securities, as well as
cash. Unquoted investments are usually structured as a combination
of ordinary shares and loan stock, while AIM investments are
primarily held in ordinary shares. Pending investment in unquoted
and AIM-traded securities, cash is held in interest bearing
accounts, UK gilts or government securities and may be invested in
interest bearing money market open ended investment companies
("OEICs").
UK companies
Investments are primarily made in companies which are
substantially based in the UK, although many of these investees may
have some trade overseas.
VCT regulation
The investment policy is designed to ensure that the Company
continues to qualify and is approved as a VCT by HM Revenue and
Customs. Amongst other conditions, the Company may not invest more
than 15 per cent by value of its investments calculated in
accordance with Section 278 of the ITA 2007 (as amended) ("VCT
Value") in a single company or group of companies and must have at
least 70 per cent of its investments by VCT Value throughout the
period in shares and securities comprised of qualifying holdings.
At least 70 per cent by VCT Value of qualifying holdings must be in
"eligible shares", which are ordinary shares which have no
preferential rights to assets on a winding up and no rights to be
redeemed, but may have certain preferential rights to dividends.
For funds raised before 6 April 2011, at least 30 per cent by VCT
Value of qualifying holdings must be in "eligible shares" which are
ordinary shares which do not carry any rights to be redeemed or
preferential rights to dividends or to assets on a winding up. At
least 10 per cent of each qualifying investment must be in
"eligible shares".
The companies in which investments are made must have no more
than GBP15 million of gross assets at the time of investment to be
classed as a VCT qualifying holding.
The Company has retained PricewaterhouseCoopers LLP ("PwC") as
its VCT Tax Status Advisers to advise it on compliance with VCT
requirements. PwC review new investment opportunities, as
appropriate, and review regularly the investment portfolio of the
Company. PwC work closely with the Manager but report directly to
the Board.
Asset mix
The Company aims to be at least 90 per cent invested in growth
businesses, subject always to the quality of investment
opportunities and the timing of realisations. Any uninvested funds
are held in cash and interest bearing securities. It is intended
that at least 75 per cent of any funds raised by the Company will
be invested in VCT qualifying investments.
Borrowing powers
The Company's Articles permit borrowing to give a degree of
investment flexibility. The Company's policy is to use borrowing
for short-term liquidity purposes only. The Company's borrowings
are restricted to 25 per cent of the value of the gross assets of
the Company. The Company currently has no borrowings.
Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses
within different qualifying industry sectors using a mixture of
securities. Generally no more than GBP2.5 million, at cost, is
invested in the same company. 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.
Investment style
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.
Co-investment with other Baronsmead VCTs
The Company aims to invest in larger, more mature unquoted and
AIM companies and to achieve this the Company invests alongside the
other Baronsmead VCTs.
Incentivising and remunerating the Manager
Performance and Key Performance Indicators ("KPIs")
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 primary KPIs highlighted above.
The investment management agreement
Under the Investment 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 receives an annual secretarial and
accounting fee that was initially fixed at GBP44,724 in 2006 and is
revised annually to reflect the movement in RPI plus a variable fee
of 0.125 per cent of the net assets of the Company which exceed
GBP5 million, subject to annual review. Annual running costs are
capped at 3.5 per cent of the average net assets of the Company
during the period (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 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 due to it and
any interest due on unpaid fees.
Performance fees
A performance fee will not be payable to the Manager until the
total return on net proceeds of the ordinary share offers exceeds 8
per cent per annum (simple) on net funds raised.
To the extent that the Total Return exceeds this threshold, a
performance fee (plus VAT) will be paid to the Manager of 10 per
cent of the excess. The performance fee payable In any one year
will be capped at 5 per cent of the shareholders' funds at the end
of the calculation period.
No performance fee is payable for the year to 31 December 2014
(2013:GBPnil).
Management retention
The co-investment scheme (the "Scheme") was introduced in
November 2004. Members of the Manager's investment team invest
their own capital into a proportion of the ordinary shares of each
and every unquoted investment made by the Baronsmead VCTs. The
shares held by the members of the Scheme in any portfolio company
can only be sold at the same time as the investment held by the
Baronsmead VCTs is sold. In addition, 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 Scheme.
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 and 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 since executives have to invest
their own capital in every unquoted transaction and cannot decide
selectively in which investments to participate. In addition the
co-investment only delivers a return after each VCT has realised a
priority return built into the structure.
The executives participating in the Scheme subscribe jointly for
a proportion (currently 12 per cent) of the ordinary shares
available to the Baronsmead VCTs in each 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.
Since the formation of the Scheme in 2004, 58 executives have
invested a total of GBP869,000 in 43 companies. At 31 December
2014, 21 of these investments have been realised generating
proceeds of GBP177 million for the Baronsmead VCTs and GBP8.9
million for the co-investment scheme. For Baronsmead VCT 4 the
average money multiple on these 21 realisations was 2.0 times cost.
Had the co-investment shares been held instead by the Baronsmead
VCTs that money multiple would have been 2.1 times cost. Over the
period of ten years (based upon the current number of shares in
issue) this equates to approximately 3.0p per share.
The Board regularly monitors the Scheme arrangements.
Advisory Fees
During the year to 31 December 2014, the Manager received income
of GBP167,000 (2013: GBP174,000) in connection with advisory fees
and incurred abort fees of GBP13,300 (2013: GBPnil) with respect to
investment attributable to Baronsmead VCT 4 plc.
Directors' fees of GBP200,000 (2013: GBP211,000) were received
in relation to services provided to companies in the investment
portfolio during the year.
Environmental, Human Rights, Employee, Social and Community
Issues
The Company is required, by company law, to provide details of
the environmental matters (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 effectiveness of these policies.
The Company does not have any employees and as a result does not
maintain specific policies in relation to these matters.
Information that is relevant to these matters has been set out
below:
Responsible Investment
The Company seeks to conduct its affairs responsibly and the
Manager is encouraged to consider environmental, human rights,
social and community issues, where appropriate, with regard to
investment decisions.
Global Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to report from the
operations of the Company, nor does it have responsibility for any
other emissions producing sources under the Companies Act 2006
(Strategic Report and Directors' Reports) Regulations 2013,
including those within its underlying investment portfolio.
Gender Diversity
The Board of Directors of the Company comprises four male
Directors; further details of the Boards' diversity policy can be
found in the full Annual Report and Accounts. The Manager has an
equal opportunity policy and currently employs 34 men and 24
women.
Returns to Investors
Dividend policy
The Board of Baronsmead VCT 4 has the objective to sustain a
progressive dividend policy for shareholders but this depends
primarily on the level of profitable realisations and it cannot be
guaranteed. There may be variations in the amount of dividends paid
year on year.
Shareholder choice
The Board wishes to provide shareholders with a number of
choices that enable them to utilise their investment in Baronsmead
VCT 4 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 NAV to account for issue costs. The Company's offer for
subscription launched in January 2014 to raise GBP10 million
(GBP9.7 million after costs) was fully subscribed.
-- 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
930,000 shares were bought in this way during the year ended 31
December 2014.
-- 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 NAV.
-- 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 193,000 shares were bought by
investors in the Company's existing shares in the year ended 31
December 2014.
On behalf of the Board
Robert Owen
Chairman
17 February 2015
Extract from the Directors Report
Shares and shareholders
Share capital
The Company issued an offer for subscription for new ordinary
shares of the Company in January 2014. The offer was fully
subscribed and 10,120,954 new ordinary shares (nominal value
GBP1,012,095.40) were allotted on 14 March 2014 at a price of
98.80p per share, representing 12.1 per cent of the issued share
capital following allotment. The terms of issue were set out in the
prospectus dated 22 January 2014 and the offer price was set on 14
March 2014.
During the year the Company bought back a total of 930,000
ordinary shares to be held in Treasury, representing 1.1 per cent
of the issued share capital as at 31 December 2014, with an
aggregate nominal value of GBP93,000. The total amount paid for
these shares was GBP838,800. The Company's remaining authority to
buy back shares from the 2014 Annual General Meeting ("AGM") is
8,858,028.
Prior to the sale from Treasury described below the number of
shares held in Treasury was 8,850,130 which was the maximum held
during the year.
On 19 September 2014, the Company sold 75,000 ordinary shares
from Treasury at a price of 90.02p per share.
As at the date of this report the Company's issued share capital
was as follows:
% of
Shares Nominal
Shares Total in issue Value
------------------ ---------- ---------- ------------
In issue 83,338,143 100 8,333,814.30
------------------ ---------- ---------- ------------
Held In treasury 8,775,130 11 877,513.00
------------------ ---------- ---------- ------------
In circulation 74,563,013 89 7,456,301.30
------------------ ---------- ---------- ------------
Shares will not be sold out of Treasury at a discount wider than
the discount at which the shares were initially bought back by the
Company.
Shareholders
Each 10p ordinary share entitles the holder to attend and vote
at general meetings of the Company, to participate in the profits
of the Company, to receive a copy of the Annual Report &
Accounts 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 2014 AGM, all of which remain valid,
can be found in the previous Annual Report & Accounts.
The Board is not, and has not been throughout the year, aware of
any beneficial interests exceeding 3 per cent of the total voting
rights.
Dividends
The Company paid the following dividends for the year ended 31
December 2014:
Dividend GBP'000
----------------------------- -------
First interim dividend of
6.0p per ordinary share
paid on 7 March 2014 3,918
----------------------------- -------
Second interim dividend
of 3.0p per ordinary share
paid on 19 September 2014* 2,248
----------------------------- -------
*the second interim dividend was paid in lieu of a final
dividend.
Responsibility for Accounts and Going Concern
The Directors who held office at the date of approval of this
Directors' Report confirm that, so far as they are each aware,
there is no relevant audit information of which the Company's
Auditor is unaware; and each Director has taken all the steps that
they ought to have taken as a Director to make themselves aware of
any relevant audit information and to establish that the Company's
Auditor is aware of that information.
After making enquires, and bearing in mind the nature of the
Company's business and assets, the Directors consider that the
Company has adequate resources to continue in operational existence
for the foreseeable future. In arriving at this conclusion the
Directors have considered the liquidity of the Company and its
ability to meet obligations as they fall due for a period of at
least 12 months from the date that these financial statements were
approved. As at 31 December 2014, the Company held cash balances
and investments in UK Treasury Bills with a combined value of
GBP22,862,000. Cash flow projections have been reviewed and show
that the Company has sufficient funds to meet both its contracted
expenditure and its discretionary cash outflows in the form of the
share buyback programme and dividend policy. The Company has no
external loan finance in place and therefore is not exposed to any
gearing or covenants.
The Directors have chosen to include its report on global
greenhouse emissions in its Strategic Report under the section on
environmental, human rights, employee, social and community
issues.
By Order of the Board
Livingbridge VC LLP
Secretary
100 Wood Street London EC2V 7AN
17 February 2015
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 and applicable law (UK Generally Accepted
Accounting Practice).
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; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
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
the financial statements comply with the Companies Act 2006. They
have general responsibility for taking such steps as are reasonably
open to them to safeguard the assets of the Company and to prevent
and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors' Report,
Directors' Remuneration Report and Corporate Governance Statement
that complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the
annual financial report
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company;
-- the Annual Report includes a fair review of the development
and performance of the business and the position of the issuer
together with a description of the principal risks and
uncertainties that they face; and
-- the report and accounts, taken as a whole, are fair,
balanced, and understandable and provide the necessary information
for shareholders to assess the Company's performance, business
model and strategy.
On behalf of the Board
Robert Owen
Chairman
17 February 2015
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the
Company's statutory accounts for the years ended 31 December 2014
and 2013 but is derived from those accounts. Statutory accounts for
2013 have been delivered to the Registrar of Companies, and those
for 2014 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.baronsmeadvct4.co.uk
Income Statement
For the year ended 31 December 2014
Year ended Year ended
31 December 2014 31 December 2013
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Unrealised gains on movements
in fair value of investments 2.3 - 1,784 1,784 - 5,489 5,489
Realised gains/(losses)
on disposal of investments 2.3 - 913 913 - (1,053) (1,053)
Income 2.5 2,567 - 2,567 3,627 - 3,627
Investment management
fee 2.6 (442) (1,327) (1,769) (414) (1,241) (1,655)
Other expenses 2.6 (445) - (445) (456) - (456)
Profit on ordinary activities
before taxation 1,680 1,370 3,050 2,757 3,195 5,952
Taxation on ordinary
activities 2.9 (257) 257 - (543) 543 -
Profit on ordinary activities
after
taxation 1,423 1,627 3,050 2,214 3,738 5,952
------------------------------ ----- -------- -------- -------- -------- -------- --------
Return per ordinary share:
Basic 2.2 1.95p 2.22p 4.17p 3.39p 5.72p 9.11p
------------------------------ ----- -------- -------- -------- -------- -------- --------
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.
Reconciliation of Movements in Shareholders' Funds
For the year ended 31 December 2014
Year ended Year ended
31 December 31 December
2014 2013
Notes GBP'000 GBP'000
Opening shareholders' funds 65,337 66,246
Profit on ordinary activities after taxation 3,050 5,952
Net proceeds of share issues & costs of buybacks 8,925 320
Other costs charged to capital 3.2 (2) (10)
Dividends paid 2.4 (6,166) (7,171)
Closing shareholders' funds 71,144 65,337
================================================= ===== ============ ============
Balance Sheet
As at 31 December 2014
Year ended Year ended
31 December 31 December
2014 2013
Notes GBP'000 GBP'000
Fixed assets
Investments 2.3 59,350 57,496
Current assets
Debtors 2.7 485 178
Cash at bank and on deposit 11,869 8,187
12,354 8,365
Creditors (amounts falling due within one
year) 2.8 (560) (524)
Net current assets 11,794 7,841
Net assets 71,144 65,337
Capital and reserves
Called-up share capital 3.1 8,334 7,322
Share premium 3.2 8,688 -
Other reserve 3.2 37,608 37,610
Capital reserve 3.2 6,835 11,787
Revaluation reserve 3.2 9,302 8,247
Revenue reserve 3.2 377 371
Equity shareholders' funds 2.1 71,144 65,337
NAV per share
- Basic 2.1 95.41p 100.06 p
- Treasury 2.1 94.74p 99.51 p
========================================== ===== ============ ============
The financial statements were approved by the Board of Directors
on 17 February 2015 and were signed on its behalf by:
Robert Owen
Chairman
17 February 2015
Cash Flow Statement
For the year ended 31 December 2014
Year ended Year ended
31 December 31 December
2014 2013
GBP'000 GBP'000
Operating activities
Investment income received 2,369 3,793
Deposit interest received 36 20
Other income received 15 -
Investment management fees paid (1,732) (1,639)
Other cash payments (443) (429)
Net cash inflow from operating activities 245 1,745
Financial investment
Purchases of investments (65,305) (39,579)
Disposals of investments 65,992 45,282
Net cash inflow from financial investment 687 5,703
Equity dividends paid (6,166) (7,171)
Net cash (outflow)/inflow before financing (5,234) 277
Financing
Net proceeds of share issues & costs of buybacks 8,925 4,069
Other costs charged to capital (9) (3)
Net cash inflow from financing 8,916 4,066
Increase in cash 3,682 4,343
Reconciliation of net cash flow to movement in net
cash
Increase in cash 3,682 4,343
Opening cash position 8,187 3,844
Closing cash at bank and on deposit 11,869 8,187
Reconciliation of profit on ordinary activities before
taxation to net cash inflow from operating activities
Profit on ordinary activities before taxation 3,050 5,952
Gains on investments (2,697) (4,436)
(Increase)/decrease in debtors (150) 196
Increase in creditors 42 33
Net cash inflow from operating activities 245 1,745
======================================================= ============ ============
Notes to the Accounts
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.
1. Basis of Preparation
1.1 Basis of accounting
These financial statements have been prepared under UK Generally
Accepted Accounting Practice ("UK GAAP") 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 January 2009 and on the assumption
that the Company maintains VCT status.
2. Investments, Performance and Shareholder Returns
2.1 NAV per share
Number NAV per share Net Assets
of ordinary shares attributable attributable
=========================== ======================== ======================== ========================
31 December 31 December 31 December 31 December 31 December 31 December
2014 2013 2014 2013 2014 2013
number number pence pence GBP'000 GBP'000
Ordinary shares (basic) 74,563,013 65,297,059 95.41 100.06 71,144 65,337
Ordinary shares (including
Treasury) 83,338,143 73,217,189 94.74 99.51 78,954 72,861
=========================== =========== =========== =========== =========== =========== ===========
The Treasury NAV per share as at 31 December 2014 has been
calculated by assuming that all shares held in Treasury were sold
to the market at the mid-share price of 89.00p at 31 December 2014
(2013: 95.00p).
2.2 Return per share
Weighted average Net profit on ordinary
number Return per activities after
of ordinary shares ordinary share taxation
======== ======================== ======================== ========================
31 December 31 December 31 December 31 December 31 December 31 December
2014 2013 2014 2013 2014 2013
number number pence pence GBP'000 GBP'000
Revenue 73,099,277 65,339,630 1.95 3.39 1,423 2,214
Capital 73,099,277 65,339,630 2.22 5.72 1,627 3,738
Total 4.17 9.11 3,050 5,952
======== =========== =========== =========== =========== =========== ===========
2.3 Investments
Purchases or sales of investments are recognised at the date of
transaction.
Investments are measured at fair value. For AIM-traded
securities this is either bid price or the last traded price,
depending on the convention of the exchange on which the investment
is traded.
In respect of 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"). This means investments are valued using an
earnings multiple, which has a discount or premium applied which
adjusts for points of difference to appropriate stock market or
comparable transaction multiples. Alternative methods of valuation
will include application of an arm's length third party valuation,
a provision on cost or a NAV basis.
Gains and losses arising from changes in the fair value of the
investments are included in the Income Statement for the year as a
capital item. Transaction costs on acquisition are included within
the initial recognition and the profit or loss on disposal is
calculated net of transaction costs on disposal.
All investments are initially recognised and subsequently
measured at fair value. Changes in fair value are recognised in the
Income Statement. The details of which are set out 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.
Year ended Year ended
31 December 31 December
2014 2013
GBP'000 GBP'000
Level 1
Listed interest bearing securities 10,993 4,198
Investments traded on AIM 24,055 23,331
Investments listed on LSE - 1,322
Investments traded on ISDX - 346
35,048 29,197
Level 2 - -
Level 3
Unquoted investments 24,302 28,299
59,350 57,496
======================================================================== ============== ==============
Level 1 Level 3
Interest
bearing Traded Traded Listed
securities on AIM on ISDX on LSE Unquoted Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening book cost 4,198 16,226 227 1,203 27,395 49,249
Opening unrealised appreciation - 7,105 119 119 904 8,247
Opening valuation 4,198 23,331 346 1,322 28,299 57,496
Movements in the year:
Reclassification in the
year - 816 (227) (589) - -
Purchases at cost 59,076 1,286 - - 5,006 65,368
Sales - proceeds (52,281) (2,764) - (1,281) (9,885) (66,211)
-
realised gains/(losses)
on sales - 443 - (8) 478 913
Unrealised gains/(losses)
realised during
the year - 767 - 675 (713) 729
Increase/(decrease) in
unrealised
appreciation - 176 (119) (119) 1,117 1,055
Closing valuation 10,993 24,055 - - 24,302 59,350
Closing book cost 10,993 16,774 - - 22,281 50,048
Closing unrealised appreciation - 7,281 - - 2,021 9,302
Closing valuation 10,993 24,055 - - 24,302 59,350
Equity shares - 24,009 - - 6,795 30,804
Loan notes - 46 - - 17,507 17,553
Fixed income securities 10,993 - - - - 10,993
Closing valuation 10,993 24,055 - - 24,302 59,350
The gains and losses included in the above table have all been
recognised in the Income Statement above.
For Level 3 unquoted investments, the effect on fair value of
changing one or more assumptions to reasonably possible
alternatives has been considered. The portfolio has been reviewed
and both downside and upside reasonable possible alternatives have
been identified and applied to the valuation of each of the
investments. The inputs flexed in determining the reasonably
possible alternative assumptions include the earnings stream and
marketability discount.
Applying the downside alternatives the value of the unquoted
investments would be GBP1.6 million or 6.5 per cent lower. Using
the upside alternatives the value of the unquoted investments would
be increased by GBP1.7 million or 7.1 per cent.
2.4 Dividends
Year ended Year ended
31 December 2014 31 December 2013
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Amounts recognised as distributions
to equity holders in the
year:
For the year ended 31 December
2014
* First interim dividend of 6.0p per ordinary share
paid on 7 March 2014 300 3,618 3,918 - - -
* Second interim dividend of 3.0p per ordinary share
paid on 19 September 2014 1,117 1,131 2,248 - - -
For the year ended 31 December
2013
* First interim dividend of 3.0p per ordinary share
paid on 20 September 2013 - - - 882 1,077 1,959
* Second interim dividend of 4.0p per ordinary share
paid on 20 December 2013 - - - 1,012 1,600 2,612
For the year ended 31 December
2012
* Final dividend of 4.0p per ordinary share paid on 19
April 2013 - - - 292 2,308 2,600
1,417 4,749 6,166 2,186 4,985 7,171
=========================================================== ======= ======== ======== ======== ======== ========
2.5 Income
Interest income on loan notes and dividends on preference shares
are accrued on a daily basis. Provision is made against this income
where recovery is doubtful.
Where the terms of unquoted loan notes only require interest or
a redemption premium to be paid on redemption, the interest and
redemption premium is recognised as income once redemption is
reasonably certain. Until such date interest is accrued daily and
included within the valuation of the investment.
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
31 December 2014 31 December 2013
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
UK franked 487 - 487 321 101 422
UK unfranked 20 1,382 1,402 8 2,292 2,300
Redemption premium - 626 626 - 885 885
507 2,008 2,515 329 3,278 3,607
Other income++
Deposit interest 37 20
Other income 15 -
Total income 2,567 3,627
Total income comprises:
Dividends 487 422
Interest 2,080 3,205
2,567 3,627
======================== =========== =========== ======== =========== =========== ========
All investments have been designated at fair value through
profit or loss on initial recognition, therefore all investment
income arises on investments at fair value through profit or
loss.
++ Other income on financial assets not designated fair value
through profit or loss.
2.6 Investment management fee and other expenses
All expenses are recorded on an accruals basis.
Year ended Year ended
31 December 2014 31 December 2013
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment management fee 442 1,327 1,769 414 1,241 1,655
Performance fee - - - - - -
442 1,327 1,769 414 1,241 1,655
========================== ======== ======== ======== ======== ======== ========
Management fees are allocated 25 per cent income: 75 per cent
capital derived in accordance with the board's expected split
between long term income and capital returns. Performance fees are
allocated 100 per cent capital.
The management agreement may be terminated by either party
giving 12 months notice of termination.
The Manager, Livingbridge VC LLP, 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 Manager is entitled to a performance fee when the total
return on net proceeds of the ordinary share offers exceeds 8 per
cent per annum (simple) on net funds raised. To the extent that the
Total Return exceeds this threshold, a performance fee will be paid
to the Manager of 10 per cent of the excess. The performance fee
payable in any one year will be capped at 5 per cent of the
Shareholders' funds at the end of the calculation period. No
performance fee is payable for the year ended 31 December 2014
(2013: GBPnil).
Other expenses
Year ended Year ended
31 December 31 December
2014 2013
GBP'000 GBP'000
Directors' fees 96 87
Secretarial and accounting fees paid to the Manager 131 127
Remuneration of the Auditor and its associates:
- audit 23 22
- other services supplied pursuant to legislation
(interim review) 5 5
- other services supplied relating to taxation 7 6
- other services supplied relating to financial statements'
reorganisation 7 5
Other 176 204
445 456
============================================================ ============ ============
Information on Directors' remuneration is given in the
Directors' Remuneration table in the Full Annual Report and
Accounts.
Charges for other services provided by the Auditors in the year
ended 31 December 2014 were in relation to the interim reviews,
financial statement reorganisation and tax compliance work
(including iXBRL). The Audit Committee reviews the nature and
extent of non-audit services to ensure that independence is
maintained. The Directors consider that the Auditors were best
placed to provide such services.
2.7 Debtors
Year ended Year ended
31 December 31 December
2014 2013
GBP'000 GBP'000
Prepayments and accrued income 329 178
Amount due from deferred consideration 156 -
485 178
======================================= ============ ============
2.8 Creditors (amounts falling due within one year)
Year ended Year ended
31 December 31 December
2014 2013
GBP'000 GBP'000
Management, secretarial & accounting fees due to the
Manager 473 438
Fundraising costs - 7
Other creditors 87 79
560 524
===================================================== ============ ============
2.9 Tax
UK corporation tax payable is provided on taxable profits at the
current rate.
Provision is made for deferred taxation on all timing
differences calculated at the current rate of tax relevant to the
benefit or liability
The tax charge for the year is lower than the standard rate of
corporation tax in the UK for a company. The differences are
explained below:
Year ended Year ended
31 December 2014 31 December 2013
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Profit on ordinary activities
before taxation 1,680 1,370 3,050 2,757 3,195 5,952
Corporation tax at 21.5
per cent
(2013: 23.25 per cent) 361 295 656 641 743 1,384
Effect of:
Non-taxable gains - (581) (581) (98) - (98)
Non-taxable dividend income (104) - (104) - (1,031) (1,031)
Losses carried forward/(utilised) - 29 29 - (255) (255)
Tax charge/(credit) for
the year 257 (257) - 543 (543) -
================================== ======== ======== ======== ======== ======== ========
At 31 December 2014 the Company had surplus management expenses
of GBP1,054,000 (2013: GBP922,000) which have not been recognised
as a deferred tax asset. This is because the Company is not
expected to generate taxable income in a future period in excess of
the deductible expenses of that future period and, accordingly, the
Company is unlikely to be able to reduce future tax liabilities
through the use of existing surplus expenses. Due to the Company's
status as a VCT, and the intention to continue meeting the
conditions required to obtain approval in the foreseeable future,
the Company has not provided deferred tax on any capital gains and
losses arising on the revaluation or disposal of investments.
3. Other Required Disclosures
3.1 Called-up share capital
Allotted, called-up and fully paid:
Ordinary shares GBP'000
73,217,189 ordinary shares of 10p each listed at 31 December
2013 7,322
10,120,954 ordinary shares of 10p each issued during the year 1,012
83,338,143 ordinary shares of 10p each listed at 31 December
2014 8,334
7,920,130 ordinary shares of 10p each held in treasury at 31
December 2013 (792)
930,000 ordinary shares of 10p each repurchased during the year
and held in treasury (93)
(75,000) ordinary shares of 10p each sold from treasury during
the year 7
8,775,130 ordinary shares of 10p each held in treasury at 31
December 2014 (878)
74,563,013 ordinary shares of 10p each in circulation* at 31
December 2014 7,456
* Carrying one vote each.
During the year the Company bought back 930,000 ordinary shares
and sold from treasury 75,000 ordinary shares, representing 1.17
per cent of the shares in issue at 31 December 2013.
There were no changes in share capital between the year end and
when the financial statements were approved.
Treasury shares
When the Company re-acquires its own shares, they are currently
held as Treasury shares and not cancelled.
Shareholders have authorised the Board to re-issue Treasury
shares at a discount to the prevailing NAV subject to the following
conditions:
-- It is in the best interests of the Company;
-- Demand for the Company's shares exceeds the shares available in the market;
-- A full prospectus must be produced if required; and
-- HMRC will not consider these 'new shares' for the purposes of
the purchasers' entitlement to initial income tax relief.
3.2 Reserves
Gains and losses on realisation of investments of a capital
nature are dealt with in the capital reserve. Purchases of the
Company's own shares to be either held in Treasury or cancelled are
also funded from this reserve. 75 per cent of management fees are
allocated to the capital reserve in accordance with the board's
expected split between long-term income and capital returns.
Distributable reserves Non-distributable reserves
Capital Revenue Share Revaluation Other
reserve reserve Total premium reserve* reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2014 11,787 371 12,158 - 8,247 37,610 45,857
Share premium and capital
redemption
reserve cancellation
costs - - - - - (2) (2)
Gross proceeds of share
issue - - - 8,988 - - 8,988
Purchase of shares for
treasury (839) - (839) - - - -
Sale of shares from treasury 70 - 70 - - - -
Loss on sale of shares
from treasury (2) - (2) - - - -
Expenses of share issue
and buybacks (4) - (4) (300) - - (300)
Reallocation of prior
year unrealised gains 729 - 729 - (729) - (729)
Realised gain on disposal
of investments# 913 - 913 - - - -
Net increase in value
of investments# - - - - 1,784 - 1,784
Management fee capitalised# (1,327) - (1,327) - - - -
Taxation relief from capital
expenses# 257 - 257 - - - -
Revenue return on ordinary
activities after taxation# - 1,423 1,423 - - - -
Dividends paid in the
year (4,749) (1,417) (6,166) - - - -
At 31 December 2014 6,835 377 7,212 8,688 9,302 37,608 55,598
============================= ======== ======== ======== ======== =========== ======== ========
* Changes in fair value of investments are dealt with in this
reserve.
(#) The total of these items is GBP3,050,000 which agrees to the
total profit on ordinary activities.
Share premium is recognised net of issue costs.
The Company does not have any externally imposed capital
requirements.
On 18 December 2013 the court granted orders allowing the
Company to cancel its share premium account and capital redemption
reserve. The amounts of GBP28,998,000 (share premium) and
GBP8,622,000 (capital redemption reserve) less costs paid will
become distributable during 2015.
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 above in the Strategic
Report.
Investments in unquoted stocks and AIM quoted companies involve
a higher degree of risk than investments in the main market. The
Company aims to reduce this risk by diversifying the portfolio
across business sectors and asset classes.
Management performs continuing analysis on the fair value of
investments and the Company's overall market positions are
monitored by the Board on a quarterly basis.
Year ended Year ended
31 December 2014 31 December 2013
5% increase 5% decrease
in share in share 5% increase 5% decrease
price price in share in share
effect effect price price
on on effect on effect on
net assets net assets net assets net assets
% of total and profit and profit % of total and profit and profit
investments GBP'000 GBP'000 investment GBP'000 GBP'000
AIM 41 1,203 (1,203) 43 1,250 (1,250)
Unquoted 41 1,215 (1,215) 49 1,415 (1,415)
========= ============ =========== =========== =========== =========== ===========
Valuation methodology includes the application of earnings
multiples derived from either listed companies with similar
characteristics or recent comparable transactions. Therefore the
value of the unquoted element of the portfolio may also indirectly
be affected by price movements on the listed exchanges.
Interest rate risk
The Company has the following investments in fixed rate
financial assets:
Year ended Year ended
31 December 2014 31 December 2013
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 % days GBP'000 % days
Fixed rate loan note
securities 17,553 8.64 # 22,916 7.89 #
Fixed interest instruments 10,993 0.32 40 4,198 0.26 48
Cash at bank and on
deposit 11,869 - - 8,187 - -
40,415 35,301
=========================== =========== ====================== =========== ======================
# Due to the complexity of the instruments and uncertainty
surrounding timing of realisation the weighted average time for
which the rate is fixed has not been calculated.
Credit risk
Credit risk refers to the risk that counterparty will default on
its obligation resulting to a financial loss to the Company. The
Investment Manager monitors credit risk on an ongoing basis.
At the reporting date, the Company's financial assets exposed to
credit risk amounted to the following:
Year ended Year ended
31 December 31 December
2014 2013
GBP'000 GBP'000
Investments in fixed rate instruments 10,993 4,198
Cash at bank and on deposit 11,869 8,187
Interest, dividends and other receivables 485 178
23,347 12,563
========================================== ============ ============
Credit risk arising on fixed interest instruments is mitigated
by investing in UK Treasury Bills.
Credit risk on unquoted loan stock held within unlisted
investments is considered to be part of market risk as disclosed
earlier in the note.
Credit risk arising on transactions with brokers relates to
transactions awaiting settlement. Risk relating to unsettled
transactions is considered to be small due to the short settlement
period involved and the high credit quality of the brokers used.
The board monitors the quality of service provided by the brokers
used to further mitigate this risk.
All the assets of the Company which are traded on a recognised
exchange are held by JP Morgan Chase ("JPM"), the Company's
custodian. The Board monitors the Company's risk by reviewing the
custodian's internal controls reports as described in the Corporate
Governance section of this report.
The cash held by the Company is held by JPM and Lloyds. The
Board monitors the Company's risk by reviewing regularly the
internal control reports of these banks. Should the credit quality
or the financial position of either bank deteriorate significantly
the Investment Manager will seek to move the cash holdings to
another bank.
There were no significant concentrations of credit risk to
counterparties at 31 December 2014 or 31 December 2013. No
individual investment (excluding UK Treasury Bills) exceeded 4.7
per cent of the net assets attributable to the Company's
shareholders at 31 December 2014 (2013: 7.1 per cent).
Liquidity risk
The Company's financial instruments include investments in
unquoted companies which are not traded in an organised public
market, as well as AIM-traded equity investments, all of which
generally may be illiquid. As a result, the Company may not be able
to liquidate quickly some of its investments in these instruments
at an amount close to their fair value in order to meet its
liquidity requirements, or to respond to specific events such as
deterioration in the creditworthiness of any particular issuer.
The Company's liquidity risk is managed on an ongoing basis by
the Investment Manager in accordance with policies and procedures
in place as described in the Risk Matrix above. The Company's
overall liquidity risks are monitored on a quarterly basis by the
Board.
The Company maintains sufficient investments in cash and readily
realisable securities to pay accounts payable and accrued expenses.
At 31 December 2014 these investments were valued at GBP22,862,000
(2013: GBP12,385,000).
3.4 Related parties
Related party transactions include Management, Secretarial,
Accounting and Performance fees payable to the Manager,
Livingbridge VC LLP, as disclosed in notes 2.6 and 2.8, and fees
paid to the Directors as disclosed in note 2.6. In addition, the
Manager operates a Co-investment Scheme, detailed in the Extract
from the Report of the Directors, whereby employees of the Manager
are entitled to participate in all unquoted investments alongside
the Company.
National Storage Mechanism
A copy of the Annual Report and Financial Statements will be
submitted shortly to the National Storage Mechanism ("NSM") and
will be available for inspection at the NSM, which is situated at:
http://www.morningstar.co.uk/uk/NSM
Annual General Meeting
The Company's Annual General Meeting will be held on 16 April
2015 at 1.00 pm at Saddlers' Hall, 40 Gutter Lane, London EC2V
6BR.
END
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on this announcement (or
any other website) is incorporated into, or forms part of, this
announcement.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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