Baronsmead 2vt Regulatory News (BMD)

Baronsmead Second Venture Trust plc

Half-yearly report and condensed financial statements for the 6 months ended 31 March 2019

The Directors of Baronsmead Second Venture Trust plc are pleased to announce the unaudited half-yearly financial report for the six months to 31 March 2019. Copies of the half-yearly report can be obtained from the following website: www.baronsmeadvcts.co.uk.

Our Investment Objective

· Baronsmead Second Venture Trust 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.

Dividend Policy

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

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

· Fund raising | From time to time the Company seeks to raise additional funds by issuing new shares at a premium to the latest published net asset value to account for issue costs. This enables shareholders seeking additional investments to do so with taxation relief.

· Dividend Reinvestment Plan | The Company offers a Dividend Reinvestment Plan which enables shareholders to purchase additional shares through the market in lieu of cash dividends. Approximately 1,338,000 shares were bought in this way during the six months to 31 March 2019.

· 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 market share price discount of approximately 5.0 per cent to net asset value. In the six months to 31 March 2019, 2,634,000 shares were bought back representing 1.1 per cent of the shares in issue at 31 March 2019 at prices which represent an average 5.0 per cent discount to the latest published net asset value at the time the shares were bought back. By providing support to market pricing, this helps those shareholders who need to realise their investment.

· Secondary market | The Company's shares are listed on the London Stock Exchange and can be bought or sold by shareholders using a stockbroker or authorised share dealing service in the same way as shares of any other listed company.

Financial Headlines

304.8p NAV total return to shareholders for every 100.0p invested at launch.

£13m raised in the period (before costs).

(8.4)% Net Asset value (NAV) per share decreased in the six-month period ended 31 March 2019.

£7.2m investments made in the six months to 31 March 2019.

The table below shows the cash returned to shareholders that invested in Baronsmead Second Venture Trust Plc dependent on their subscription cost, including tax available to be reclaimed on subscriptions.

The total return could be higher for those shareholders who were able to defer a capital gain on subscription and the net sum invested may be less.* Dividends paid to C shareholders post conversion have been adjusted by the conversion ratio (0.85642528).

Chairman's StatementThe six months to 31 March 2019 saw steady positive progress from our unquoted investments, including three successful realisations. The quoted portfolio decreased by 15 per cent during the period as a result of underlying market volatility.

During the period the Company successfully raised £13m (before costs) through an offer of subscription which closed on 22 January 2019.

John DaviesChairman

Results

During the six months to 31 March 2019, the Company's NAV per share decreased 8.4 per cent from 87.6p to 80.3p after the payment of a final dividend of 4.5p per share on 8 March 2019.

Over the six months to 31 March 2019, our unquoted investments delivered an increase in their valuations of 3.7 per cent after accounting for realised gains and losses following the full realisations of three of our investments.

As you will no doubt be aware, there was increased volatility in quoted markets, particularly in the first half of the period under review and quoted market valuations declined. The value of our AIM-traded and other listed investments decreased by 15.2 per cent. Similarly, our investment in LF Gresham House UK Micro Cap Fund ('Micro Cap Fund') decreased by 9.0 per cent and our investment in LF Gresham House UK Multi Cap Income Fund ('Multi Cap Income Fund') decreased by 4.4 per cent.

The Investment Manager always looks at the fundamentals of Quoted investments and is able to take a long-term view through periods of quoted market volatility.

DividendsA final dividend of 4.5p per share was paid on 8 March 2019, having been approved at the AGM on 28 February 2019.

The Board aims to maintain a minimum annual dividend level of around 6.5p per ordinary share and in the past eight years has paid a minimum of 7.5p in each financial year. Going forward the Board will wherever possible seek to pay two dividends to Shareholders in each calendar year, typically an interim dividend in September and a final dividend following the AGM in February/March.

It is of course important to remind shareholders that the payment date and amount of future dividends depends significantly on the level and timing of profitable realisations and cannot be guaranteed and inevitably there will be variations in the amounts and dates that dividends are paid.

Portfolio Review

At 31 March 2019, the Company's investment portfolio was valued at £130m and comprised investments in 79 unquoted and AIM-traded companies. The Company's investments in the Micro Cap Fund and Multi Cap Income Fund provide additional diversity giving investment exposure to an additional 63 AIM-traded and fully listed companies.

Investment and Divestments

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

The Investment Manager, with the support of the Board, took time to consider how best to deploy funds under the new VCT rules, introduced in November 2015 and further enhanced in the Autumn Budget in 2017. As advised previously the rule changes have required the Manager to adapt its investment strategy to focus on the provision of development capital to younger companies to enable them to grow their businesses organically rather than through acquisition. To address the increased risk profile of this nature of investing the Investment Manager will typically invest smaller sums into a larger number of businesses compared to pre-2016 periods.

I am pleased to report that the Company made eight new investments totalling £6.8m and three follow-on investments totalling £0.4m in the six months to 31 March 2019. The new investments included Diaceutics plc, a data analytics and services business to the pharmaceutical industry, The Panoply Holdings plc, a provider of digital transformation services, and Rockfish Group Ltd, a chain of seafood restaurants in the South West of England. Follow on investments were made into SilkFred Ltd, a fashion marketplace, Access Intelligence plc, a provider of corporate communications and reputation management software, and CloudCall Group plc, a cloud-based telephony software integrated with CRM systems.

During the period, a total of £7.1m was realised from the full and partial sale of unquoted investments. Full realisations included a post-2015 investment, Symphony Ventures Ltd, a robotic process automation consultancy business, resulting in a return on cost of 2.4x and, Upper Street Events Ltd, an events business which delivered 0.7x cost. Regrettably, our investment into Crawshaw Group plc, a chain of butchers, was written off in the period, though the majority of the value of this investment had decreased in previous years. Similarly, our small investment into Labrador Ltd, an energy switching company, was written down to nil value as the business entered administration.

Following the balance sheet date, the Company realised its investment in Create Health Ltd returning proceeds totalling £6.0m and making a return of 3.5x cost, and its investment in Kirona Ltd returning proceeds totalling £5.3m and making a return of 3.1x cost.

Fundraising

The Board appreciates that shareholders would like as much notice as possible of its fundraising intentions so that they can plan their financial affairs accordingly. Accordingly, the Board will consider whether to raise new funds in the 2019/20 tax year which will be determined by the Company's cashflow and its anticipated requirements to fund new investments over the next two years. The Board ordinarily seeks to raise funds during January and February, having informed shareholder of its fundraising intentions in November when its annual results are published, or earlier if practicable. However, if it becomes appropriate to raise new funds earlier the Board will ensure that shareholders are informed as soon as possible.

Change of Management Arrangements

As communicated to shareholders on 8 November 2018, the Investment Manager for Baronsmead Second Venture Trust was changed to Gresham House plc, from Livingbridge VC LLP, on 30 November 2018. Since this time, the sixteen transferring employees have continued to work in accordance with the terms of the original investment management and co-investment agreements, with continued support from Livingbridge's two key partners, Andrew Garside and Sheenagh Egan. The Board is pleased with the smooth and swift integration of the team into Gresham House plc.

Outlook

The long-awaited Brexit deal has continued to prove elusive, and the uncertainty this has caused has resulted in some concerns in the UK - the impact of which has been most keenly felt in the volatile performance of our AIM portfolio over the period. The Board and Investment Manager have considered the risks Brexit poses to the unlisted investments in the portfolio. The Investment Manager had reviewed the portfolio and assessed the impact of changes in foreign currency exchange rates, the supply of labour and short-term fluctuations in demand. The Board will continue to monitor Brexit developments as they occur.

The newer investments in earlier stage companies represent a relatively small but growing and important proportion of the overall portfolio and it will take time for this portfolio to mature and materially contribute to investment returns. In the meantime, the Company's overall portfolio is diverse and continues to make steady progress.

John Davies

Chairman

22 May 2019

Investment Portfolio at 31 March 2019

Investment in the period

Realisations in the period

Responsibility Statement of the Directors in respect of the Half-Yearly Financial Report

We confirm that to the best of our knowledge;

· the condensed set of financial statements has been prepared in accordance with FRS 104 Interim Financial Reporting

· the interim management report includes a fair review of the information required by:

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

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

The Half-yearly Financial Report was approved by the Board of Directors and the above responsibility statement was signed on its behalf by:

On behalf of the Board

John Davies

Chairman

22 May 2019

Condensed Income Statement (unaudited)

For the six months to 31 March 2019

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 realized and unrealised profit or loss on investments and the proportion of the management fee charged to capital.

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

Condensed Statement of Changes in Equity (unaudited)

For the six months to 31 March 2019

Condensed Balance Sheet (unaudited)

As at 31 March 2019

Condensed Statement of Cashflow (unaudited)

For the six months to 31 March 2019

Notes

1. The condensed financial statements for the six months to 31 March 2019 comprise the unaudited financial statements set out together with the related notes below. The Company applies FRS 102 and the AIC's. Statement of Recommended Practice issued in November 2014 and updated in January 2017 and February 2018 ('the SORP') for its annual Financial Statements. The condensed financial statements for the six months to 31 March 2019 have therefore been prepared in accordance with FRS104 'Interim Financial Reporting' and the principles of the SORP. They have also been prepared on a going concern basis. The accounts have been prepared on the same basis as the accounting policies set out in the Company's Annual Report and Financial Statements for the year ended 30 September 2018. The financial information contained in this half-yearly financial report does not constitute statutory accounts as defined in sections 434 - 436 of the Companies Act 2006. The information for the year to 30 September 2018 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies. The report of the auditor for the audited financial statements for the year to 30 September 2018 was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. No statutory accounts in respect of any period after 30 September 2018 have been reported on by the Company's auditors or delivered to the Registrar of Companies.

A review opinion has been obtained over the half-yearly report which can be obtained on our website.

2. Return per share is based on a weighted average of 219,850,847 ordinary shares in issue (31 March 2018 - 214,509,435 ordinary shares; 30 September 2018 - 216,041,017 ordinary shares).

3. Earnings for the first six months to 31 March 2019 should not be taken as a guide to the results of the full financial year to 30 September 2019.

4. During the six months to 31 March 2019 the Company issued 15,229,139 shares at net proceeds of £12,634,000 (including costs). During the same period, the Company purchased 2,634,400 shares to be held in treasury at a cost of £2,102,000 and sold 650,000 shares from treasury for £484,000. At 31 March 2019, the Company held 18,282,614 ordinary shares in treasury. Shares may be sold out of treasury below Net Asset Value as long as the discount at issue is narrower than the average discount at which the shares were bought into treasury.

5. Excluding treasury shares, there were 229,737,714 ordinary shares in circulation at 31 March 2019 (31 March 2018 - 218,252,975 ordinary shares; 30 September 2018 - 216,492,975 ordinary shares).

6. The final dividend in relation for the year ended 30 September 2018 of 4.50p per share (3.00p capital, 1.50p revenue) was paid on 8 March 2019 to shareholders on the register on 8 February 2019. The ex-dividend date was 7 February 2019. During the year to 30 September 2018, the Company paid an interim dividend on 21 September 2018 of 3.00p per share (2.85p capital, 0.15p revenue).

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

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

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

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

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

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

- Rebased Cost

- Earnings Multiple

- Offer Less 10%

The earnings multiple approach involves more subjective inputs than the Rebased Cost and Offer approaches and therefore presents a greater risk of over or under estimation. Key assumptions for the Multiples approach are the selection of comparable companies and the use of either historic or forecast earnings, as considered most appropriate. Other assumptions include the appropriateness of the discount magnitude applied for reduced liquidity and other qualitative factors. These assumptions are described in more detail in note 2.3 in the Company's Report and Financial Statements for the year to 30 September 2018. The techniques used in the valuation of unquoted investments have not changed materially since the date of that report.

10 investments held were transferred from level 1 to level 2, due to the infrequency of their shares being traded on the AIM.

There has been no significant change in the risk analysis as disclosed in the Company's Annual Report and Accounts to 30 September 2018.

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

9. Copies of the half-yearly financial report have been made available to shareholders and are available from Gresham House, Octagon Point, 5 Cheapside, London EC2V 6AA.

Principal Risks and Uncertainties

The Company's assets consist of equity and fixed interest investments, shares in collective investment schemes, cash and liquid resources. Its principal risks are therefore market risk, credit risk and liquidity risk. Other risks faced by the Company include loss of approval as a Venture Capital Trust, legislative, investment performance, economic, political and other external factors, regulatory and compliance and operational risks. These risks, and the way in which they are managed, are described in more detail in the Principal Risks & Uncertainties table within the Strategic Report section in the Company's Annual Report and Accounts for the year ended 30 September 2018. The Company's principal risks and uncertainties have not changed materially since the date of that report.

Investment in Associates

The company has made the presumption that the following holdings are investments in associates, owing to the proportion of equity held and representation on the board representing significant influence over the operations of the company. The investments held are held as part of an investment portfolio, and are therefore measured at fair value through profit and loss, as detailed in note 7 rather than using the equity method, as permitted by Section 14 of FRS 102:

Related Parties

Gresham House Asset Management Ltd ('the Manager') manages the investments of the Company. The Manager also provides or procures the provision of secretarial, accounting, administrative and custodian services to the Company. Under the management agreement, the Manager receives a fee of 2.5 per cent per annum of the net assets of the Company. This is described in more detail under the heading 'The Investment Management Agreement' within the Strategic Report in the Company's Annual Report and Accounts for the year ended 30 September 2018. During the period the Company has incurred management fees of £2,128,000 (31 March 2018 - £2,407,000; 30 September 2018 - £4,883,000) and secretarial and accounting fees of £86,000 (31 March 2018 -£82,000; 30 September 2018 - £166,000) payable to the Manager. No performance fee has been accrued at 31 March 2019 (31 March 2018 - £nil; 30 September 2018 - £nil). This is described in more detail under the heading 'Performance fees' within the Strategic Report in Company's Annual Report and Financial Statements for the year to 30 September 2018.

A related party relationship exists between Baronsmead Second Venture Trust and Happy Days Consultancy Limited, owing to the significant influence deemed to be held over the operations of the company. During the period the company accrued for £176,000 from Happy Days Consultancy relating to interest due on loan balances. As at 31 March 2019, the loan balance stood at £6,627,000, including £2,514,000 of capitalised interest, as provided for in the Agreement with the company.

A related party relationship exists between Baronsmead Second Venture Trust and Armstrong Craven, owing to the significant influence deemed to be held over the operations of the company. During the period the company received £125,000 and accrued for a further £30,000 relating to interest on loan balances, and received £1,142,000, including capitalised interest of £327,000 and redemption premium of £74,000, through the redemption of loan notes. As at 31 March 2019, the loan balance stood at £1,137,000, including £115,000 of capitalised interest, as provided for in the Agreement with the company.

Going Concern

After making enquiries, and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. In arriving at this conclusion the Directors have considered the liquidity of the Company and its ability to meet obligations as they fall due for a period of at least twelve months from the date that these financial statements were approved. As at 31 March 2019 the Company held cash and readily realisable securities totalling £30,733,000 (31 March 2018 - £36,620,000; 30 September 2018 - £31,786,000) including £28,790,000 (31 March 2018 - £35,840,000; 30 September 2018 - £30,690,000) held in Sterling Liquidity Funds. 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 covenants.