Baronsmead Vt Regulatory News (BVT)

Baronsmead Venture Trust plc

Annual Financial Report for the year ended 30 September 2019

The Directors of Baronsmead Venture Trust plc are pleased to announce the Annual financial report for the year ended 30 September 2019. Copies of the Annual financial report can be obtained from the following website: www.baronsmeadvcts.co.uk

Financial Headlines

·; Net Asset Value ("NAV") total return of 382.4p to Shareholders for every 100.0p invested at launch

·; NAV per share decreased 10.3 per cent to 78.1p in the 12 months to 30 September 2019, before deductions of dividends.

·; Annual tax free dividend yield of 9.7% based on 6.5p dividends (including proposed final dividend of 3.5p) and opening NAV of 87.0p

·; £13.6m - Investments made into 13 new and 7 follow on opportunities during the year.

Our Investment Objective

Baronsmead Venture Trust is a tax efficient listed company which aims to achieve long-term investment returns for private investors, including tax-free dividends.

Investment Policy

·; To invest primarily in a diverse portfolio of UK growth businesses, whether unquoted or traded on AIM.

·; Investments are made selectively across a range of sectors in companies that have the potential to grow and enhance their value.

Dividend Policy

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

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

CHAIRMAN'S STATEMENT

During the year we have seen steady, positive progress from our unquoted investments including several successful realisations, although the quoted portfolio suffered as a result of falling markets.

Results

The Company's NAV per share decreased 10 per cent from 87p to 78p before payments of dividends during the year.

Portfolio Review

At 30 September 2019, the Company's investment portfolio was valued at £96 million and comprised direct investments in a total of 82 companies of which 28 are unquoted and 54 are AIM-traded companies. The Company's investments in the LF Gresham House UK Micro Cap Fund ("Micro Cap") and LF Gresham House UK Multi Cap Income Fund ("Multi Cap") provide additional diversity giving investment exposure to an additional 57 AIM-traded and fully listed companies and thus spreading investment risk across some 139 companies.

During the 12 months to 30 September 2019, the underlying value of the unquoted portfolio increased by 11 percent.

It was disappointing to see a decrease in the value of the AIM-traded portfolio of 25 per cent. Performance was negatively impacted by the de-rating of the Trust's holding in Staffline which downgraded profit expectations and undertook a dilutive equity fund raising to strengthen its balance sheet. Excluding this impact the remaining AIM-traded portfolio decreased by 16 per cent. It should be noted that including divestments in previous years the Trust's investment in Staffline has generated profits of £6.0 million, equivalent to 3.0p per share. There was also a decrease of 7 per cent in the Micro Cap fund while the Multi Cap fund performance was broadly flat over the period with a small increase of 1 per cent, following volatile trading since October 2018.

The quoted portfolios have been impacted by negative sentiment towards the UK equity markets due to the uncertainty surrounding Brexit and wider economic conditions. Smaller UK listed companies, and domestically focused businesses where your Trust's investee companies typically sit, have underperformed their larger and more international peers since the referendum result in 2016. The Manager believes that the underlying health and prospects of the portfolio remain strong and valuations are depressed. This view has been supported by an elevated level of takeover offers within UK small cap companies during 2019 coming from international trade as well as private equity buyers.

Investments and Divestments

The Manager has continued to build its investment activity to focus on the provision of development capital to earlier stage companies. The Board is pleased to report that the investment rate has continued to grow and during the year the Company invested a total of nearly £14 million in 20 companies. The new investments in earlier stage opportunities may result in greater volatility in returns over time. However, the more mature, established portfolio of existing investments should assist in sustaining returns for shareholders as the new portfolio develops and grows.

There have been a number of strong realisations during the year. Firstly, from the unquoted portfolio, there was a total of £15 million realised from full and partial sales. Full realisations included a post-2015 investment, Symphony Ventures, a robotic process automation consultancy business, resulting in a successful return on cost of 2.4x. Other notable full realisations during the year were Create Health for 3.6x cost and Kirona for 3.1x cost. Upper Street Events and IP Solutions were sold for 0.7x cost and 0.4x cost respectively.

Three quoted investments were fully realised during the period. Sanderson Group was realised after a takeover resulting in a return of 2.7x cost and a partial divestment STM Group realised 0.9x cost. A notable additional success was the partial profitable sale of shares in Bioventix. The Manager carefully reviews its larger quoted holdings and decided to crystallise some of the value in Bioventix resulting in an outstanding return of 15.0x cost. Our investments in Crawshaw Group, a chain of butchers and Paragon Entertainment were written off in the period, although the majority of the value of these investments had decreased in previous years.

The Board is delighted to see realised capital profits being created to continue to fund current and future dividends for shareholders.

Change of Dividend policy

The Board announced a change to the dividend policy on 23 September 2019. The previous policy was to sustain an annual dividend level at an average of 6.5p per ordinary share. The Board believes this is no longer appropriate for two reasons. Firstly, the number of shares has increased and will increase further through future fundraisings and the absolute level of this dividend may in time become too high to sustain consistently as a percentage of NAV. Secondly, as the proportion of investments in earlier stage companies increases, following the VCT rule changes in 2015, it is expected that the timing of returns will be less predictable. The Board feels it is therefore prudent to adopt a yield based dividend.

The new policy is as follows:

The Board will decide the annual dividends each year and the level of the dividends will depend on investment performance, the level of realised returns and available liquidity. The dividend policy guidelines below are not binding and the Board retains the ability to pay higher or lower dividends relevant to prevailing circumstances and actual realisations. However, the Board confirms the following two guidelines that shape its dividend policy:

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

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

Change of Manager

The change of Investment Manager from Livingbridge VC LLP ("Livingbridge") to Gresham House Asset Management Ltd ("Gresham House") on 30 November 2018 has been a smooth and well planned transition. The team that moved to Gresham House has continued to work in accordance with the terms of the original investment management and co-investment agreements, with continued support from Livingbridge partners, Andrew Garside and Sheenagh Egan.

The Board is pleased with the smooth and swift integration of the team into Gresham House and with the high level of support and investment provided by our new Investment Manager.

Fundraising

In August 2019 the Board announced its intention to raise new funds to enhance the Company's resources available for new and follow on investments over the next two to three years. Consequently, on 4 October 2019 the Company launched an offer for subscription to raise £20 million (before costs). As at the date of this statement there has been £11 million invested by shareholders and the offer remains open. We would like to thank existing shareholders for their continued support and to welcome new shareholders.

Annual General Meeting

I look forward to meeting as many shareholders as possible at the Annual General Meeting ("AGM") to be held at 11.00 am on 26 February 2020, at Saddlers' Hall, 40 Gutter Lane, London, EC2V 6BR. As usual I will present my own review of the year and will be joined by the Manager. We would be delighted if you would then join us for lunch afterwards.

Brexit

The impact of the uncertainty caused by the long-awaited Brexit deal has been most keenly felt in the volatile performance of our AIM portfolio over the year. The Board and Investment Manager have considered the risks

Brexit poses to the unlisted investments in the portfolio. The impact of changes in foreign currency exchange rates, the supply of labour and short-term fluctuations in demand has been assessed across the portfolio of unlisted investments. The Board and the Investment Manager continue to believe that the investment portfolio is robustly positioned to withstand the potential impact of Brexit.

The Investment Manager continues to consider the risks and opportunities that Brexit may present in all new investment and portfolio management decisions. The early stage investment arena remains highly active in the UK and Brexit does not appear to be reducing demand for investment from young, innovative and ambitious UK companies. The Board will continue to monitor Brexit developments as they occur.

Outlook

There are macro-economic risks arising from external factors including Brexit and trade wars and the quoted markets have experienced volatility this year. As always, the Investment Manager endeavours to focus on fundamentals of company performance and looks to the long term, as the evergreen structure of your VCT facilitates. Risk mitigation also comes in part from increasing diversity across a large portfolio of now 82 direct investees.

Peter Lawrence

Chairman

22 November 2019

MANAGER'S REVIEW

It is disappointing to report a decline in the net asset value total return over the year. This has been driven by the underperformance of the quoted portfolio primarily linked to the negative market sentiment towards UK small cap stocks. We continue to believe that there is an attractive long-term investment case for the majority of the large quoted holdings. The unquoted portfolio has seen steady performance with some strong realisations during the year helping offset some of the quoted portfolio decline.

PORTFOLIO REVIEW

Overview

The net assets of £151 million were invested as follows:

* By value as at 30 September 2019.

** Return includes interest received on unquoted realisations during the year.

♯Represents cash, OEICs net current assets.

Each quarter the direction of general trading and profitability of all investee companies is assessed so that the Board can monitor the overall health and trajectory of the portfolio. At 30 September 2019, 85 per cent of the 82 companies directly held in the portfolio (excluding the investments held by Collective Investment Vehicles) were progressing steadily or better.

The tables below show the breakdown of new investments and realisations over the course of the year and overleaf is commentary on some of the key highlights in both the unquoted and quoted portfolios.

Investment Activity - Unquoted and Quoted 

During the year, £13.6 million was invested in 20 companies including 13 new additions to the portfolio and 7 follow on investments. Below are descriptions of a selection of the new investments made;

·; Diaceutics plc (quoted) is a data analytics business in the pharma sector

·; Rockfish Group Limited (unquoted) is a chain of specialist seafood restaurants based in Devon. Rockfish specialise in serving fresh local & sustainable seafood from their chain of six restaurants.

·; Storyshare Holdings Ltd (unquoted) provides learning and employee engagement software for large business with mobile or international workforces.

·; The Panoply Holdings plc (quoted) is an IT services company focused on digital transformation in private companies and the public sector. The Company provides a range of services including consultancy and software development which supports customers to digitally enhance their businesses.

·; Travel Local Ltd (unquoted) is a online travel agent that differentiates itself from traditional bespoke holiday operators by putting customers directly in touch with experts who live in each country to help arrange itineraries providing a more authentic and unique experience

·; Vinoteca Ltd (unquoted) is a wine bar and restaurant business built around an extensive wine choice and seasonal contemporary food. The company operates a chain of five wine bars and restaurants in London with a sixth site currently in development in Birmingham.

·; Yourwelcome (unquoted) supplies tablets and software into vacation rental, Airbnb and corporate letting properties, with their proprietary software improving the guest experience through an information portal, providing tips and recommendations on the local area and a guest communication tool.

The Company continues to execute its investment strategy developed since the November 2015 VCT rule changes. The strategy is to diversify investment across a number of smaller investments with the expectation of selectively providing follow on funding as these companies grow to develop.

As Investment Manager we have a hands-on approach with each investment company working with the management teams to help them accelerate growth. In addition to our in-house portfolio team, we have a network of operating partners who have deep experience of supporting investee companies and in delivering key business milestones and unlocking growth.

Unquoted Portfolio

Performance

The unquoted portfolio has had a steady year of progress with a performance of 9 per cent. increase over the course of the year. The portfolio is valued by the Board using a consistent valuation methodology every quarter. The majority of the value created by portfolio companies comes from trading and operational improvements including revenue and margin growth, rather than financial leverage.

Divestments

During the year the unquoted portfolio returned £15 million in proceeds following the full realisation of Create Health (3.6x cost), Kirona (3.1x cost) and Symphony Ventures (2.4x cost). This represents an excellent trio of realisations.

Along with the three successful realisations, two companies were fully realised at a loss. Upper Street Events was sold for 0.7x cost and IP Solutions was fully realised for 0.4x cost. Armstrong Craven made a loan note repayment within the year and has now returned 1.7x original invested cost over the course of our hold period. There was also a partial loan note write off in CMME as part of a balance sheet restructure.

After the year end the Company realised its investment in CR7 at a full loss.

Quoted Portfolio (AIM-traded investments)

Performance

The quoted portfolio has had disappointing performance during the year with a decrease of 25 per cent as a result of difficult market conditions and stock specific factors.

The three top performers fully realised during the year were Sanderson Group, a software and IT services business focused on digital retail technology and enterprise software to manufacturing, wholesale distribution and logistics sectors, which was fully realised during the year after announcing a recommended cash offer by Aptean Limited; Bioventix, a manufacturer and supplier of sheep monoclonal antibodies for global diagnostic applications, driven by strong interim results earlier in the year and Ixico, a pharma-focused data analytics and services business specialising in neurodegenerative diseases, after a strong trading update announcing contract wins and results expected to be materially ahead of expectations.

The major negative performer during the year was Staffline Recruitment Group after announcing a material profit warning in part driven by Brexit uncertainty. Other detractors to performance were Netcall, a customer engagement software provider who issued a profit downgrade due to delayed contracts, LoopUp Group, a conference calling solutions provider following a profit warning due to lower activity in the existing customer base and Dods Group, a provider of business intelligence, conference and media services to the political, public sector and corporate markets, following a profit warning due to softer trading conditions in the UK driven by political uncertainty towards the end of 2018.

While we have seen valuation decreases in a number of the companies in our quoted portfolio we believe the drop in performance is largely due to market sentiment. We closely monitor our AIM portfolio with a rolling programme of independent reviews of top AIM holdings and broadly continue to be positive on the long-term investment prospects of these companies.

Divestments

Proceeds totalled £5.3 million during the year following 3 full and 2 partial realisations. Sanderson Group plc was fully realised following a takeover by Aptean Limited realising 2.7x cost while Crawshaw Group and Paragon Entertainment were written off for zero proceeds during the year. The opportunity to crystallise some profits was taken in two companies with proceeds of £2.0 million in Bioventix representing a 15.0x cost and a small realisation in STM Group realising 0.9x cost.

Collective Investment Vehicle

LF Gresham House UK Micro Cap Fund ("Micro Cap") had a negative return of 7 per cent over the year (2018, 19 per cent). At 30 September 2019, Baronsmead Venture Trust's cumulative £7.0 million investment was valued at £25.8 million. As at 30 September 2019, the Micro Cap fund held investments in 45 AIM-traded and main market listed companies.

The investment in LF Gresham House UK Multi Cap Income Fund ("Multi Cap") has had a modest increase of 1 per cent over the year. At 30 September 2019, Baronsmead Venture Trust's investment was valued at £2.8 million. As at 30 September 2019, the Multi Cap fund held investments in 41 AIM-traded and main market listed companies.

Liquid assets (cash and near cash)

Baronsmead Venture Trust plc had cash of approximately £28 million at the year-end. This asset class is conservatively managed to take minimal or no capital risk.

OUTLOOK

We anticipate further periods of market volatility during the remainder of 2019 and into 2020, given the wider political and macro-economic uncertainties. However, we continue to believe that in an uncertain market environment our focus on investing in a diverse portfolio of companies with strong fundamental attributes has the potential to outperform over the cycle.

Gresham House Asset Management Ltd

Investment Manager

22 November 2019

Investments in the year

Realisations in the year

♯Residual book cost at realisation date.

‡ Proceeds at time of realisation including interest.

* Includes interest/dividends received, loan note redemptions and partial realisations accounted for in prior periods.

†Deferred consideration of £20,000 was received in respect of Eque2 which had been sold in a prior period.

Strategic Report

The top ten investments by current value at 30 September 2019 illustrate the diversity of investee companies within the portfolio. For consistency across the top ten and based on guidance from the AIC, data extracted from the last set of published audited accounts is shown in the tables below. However, this may not always be representative of underlying financial performance for several reasons. Published accounts lodged at Companies House are out of date and the Manager works from up to date monthly management accounts and has access to draft but unpublished annual audited accounts. In addition, pre-tax profit in statutory accounts is often not a representative indicator of underlying profitability as it can be impacted by, for example, deductions of non-cash items such as amortisation that relate to investment structures rather than operating performance.

1. Carousel Logistics Ltd - Sittingbourne

Unquoted

http://www.carousel.eu 

All funds managed by Gresham House

First investment: October 2013

Total original cost: £4,245,000

Total equity held: 26.7%

Baronsmead Venture Trust only

Original cost: £1,910,000

Valuation: £8,028,000

Valuation basis: Earnings Multiple

Income recognised in the year: £168,000

% of equity held: 12.0%

Voting rights: 12.9%

Year ended 31 December

(Source: Carousel Logistics Limited Financial Statement 31 December 2018.)

2. Ideagen plc - Nottinghamshire

Quoted

www.ideagen.com

All funds managed by Gresham House†

First investment: January 2013

Total original cost: £3,000,000

Total equity held: 5.0%

Baronsmead Venture Trust only

Original cost: £1,350,000

Valuation: £7,323,000

Valuation basis: Bid Price

Income recognised in the year: £13,000

% of equity held: 2.3%

Voting rights: 2.3%

Year ended 30 April

(Source: Ideagen plc, Annual Report & Accounts 30 April 2019)

3. Happy Days Consultancy Ltd - Cornwall

Unquoted

www.happydaysnurseries.com

All funds managed by Gresham House

First investment: April 2012

Total original cost: £7,600,000

Total equity held: 57.2%

Baronsmead Venture Trust only

Original cost: £3,420,000

Valuation: £5,027,000

Valuation basis: Earnings Multiple

Income recognised in the year: £Nil

% of equity held: 25.7%

Voting rights: 15.9%

Year ended 31 December

(Source: H. Days Holdings Limited Annual Report and Financial Statements 31 December 2018)

4. Glide Ltd - Somerset

Unquoted

www.glidegroup.co.uk

All funds managed by Gresham House

First investment: May 2007

Total original cost: £5,000,000

Total equity held: 8.1%

Baronsmead Venture Trust only

Original cost: £2,500,000

Valuation: £4,892,000

Valuation basis: Earnings Multiple

Income recognised in the year: £Nil

% of equity held: 4.0%

Voting rights: 4.0%

Year ended 31 January

(Source: Glide Topco Ltd, Report and Financial

Statements 31 January 2019.)

* 3 month period ended 31 January 2018.

5. Bioventix plc - Surrey

Quoted

www.bioventix.com

All funds managed by Gresham House†

First investment: June 2013

Total original cost: £711,000

Total equity held: 5.3%

Baronsmead Venture Trust only

Original cost: £320,000

Valuation: £4,514,000

Valuation basis: Bid Price

Income recognised in the year: £209,000

% of equity held: 2.4%

Voting rights: 2.4%

Year ended 30 June

(Source: Bioventix plc, Annual Report and Accounts, 30 June 2019.)

6. Pho Holdings Ltd - London

Unquoted

www.phocafe.co.uk

All funds managed by Gresham House

First investment: July 2012

Total original cost: £4,402,000

Total equity held: 28.6%

Baronsmead Venture Trust only

Original cost: £1,982,000

Valuation: £4,411,000

Valuation basis: Earnings Multiple

Income recognised in the year: £Nil

% of equity held: 12.9%

Voting rights: 12.9%

Year ended 25 February

(Source: Source: Pho 2012 Limited, Directors' Report and Financial Statements 25 February 2018.)

* 52 week period ended 25 February 2018.

** 52 week period ended 26 February 2017.

7. Cerillion Plc - London

Quoted

www.crellion.com

All funds managed by Gresham House

First investment: November 2015

Total original cost: £4,000,000

Total equity held: 17.8%

Baronsmead Venture Trust only

Original cost: £1,800,000

Valuation: £4,074,000

Valuation basis: Bid Price

Income recognised in the year: £109,000

% of equity held: 8.0%

Voting rights: 8.0%

Year ended 30 September

(Source: Cerillion Plc, Annual Report and Accounts 30 September 2018)

8. Ten10 Group Ltd

Unquoted

www.ten10.com 

All funds managed by Gresham House

First investment: February 2015

Total original cost: £4,237,000

Total equity held: 20.8%

Baronsmead Venture Trust only

Original cost: £1,908,000

Valuation: £3,424,000

Valuation basis: Earnings, Multiple

Income recognised in the year: £636,000

% of equity held: 9.3%

Voting rights: 8.4%

Year ended 30 April

(Source: Ten10 Group Limited, Annual Report and Financial Statements 30 April 2019.)

9. Custom Materials Ltd (trading as Moteefe) - London

Unquoted

www.moteefe.com

All funds managed by Gresham House

First investment: March 2017

Total original cost: £3,550,000

Total equity held: 16.1%

Baronsmead Venture Trust only

Original cost: £1,598,000

Valuation: £2,998,000

Valuation basis: Rebased Cost

Income recognised in the year: £Nil

% of equity held: 7.2%

Voting rights: 7.2%

Year ended 31 December

(Source: Custom Materials Ltd, unaudited Financial Statements 31 December 2018.)

A full set of accounts is not publicly available.

10. Inspired Energy Plc - Lancashire

Quoted

www.inspitedplc.co.uk

All funds managed by Gresham House†

First investment: November 2011

Total original cost: £1,437,000

Total equity held: 6.4%

Baronsmead Venture Trust only

Original cost: £574,000

Valuation: £2,755,000

Valuation basis: Bid Price

Income recognised in the year: £119,000

% of equity held: 2.6%

Voting rights: 2.6%

Year ended 31 December

(Source: Inspired Energy Plc Annual Report and Accounts 2018.)

Principal Risks & Uncertainties

The Board has included below details of the principal risks & uncertainties facing the Company and the appropriate measures taken in order to mitigate these risks as far as practicable.

The financial risks faced by the Company are covered within the Notes to the Financial Statements.

Extract of the Strategic Report

Applying the Business Model

This section of the Strategic Report sets out the practical steps that the Board has taken in order to apply the business model, achieve the investment objective, and adhere to the investment policy. The investment policy, which is set out in the full annual report and accounts, is designed to ensure that the Company continues to qualify and is approved, as a VCT by HM Revenue and Customs.

Investing in the Right Companies

Investments are primarily made in companies which are substantially based in the UK, although many of these investees may have some trade overseas. Investments are selected in the expectation that the application of private equity disciplines, including an active management style for unquoted companies, will enhance value and enable profits to be realised from planned exits.

The Board has delegated the management of the investment portfolio to Gresham House. The Manager has adopted a 'top-down, macro economic and sector-driven' approach to identifying and evaluating potential investment opportunities, by assessing a forward view of firstly the broader business environment, then the sector and finally the specific potential investment opportunity.

Based on its research, the Manager has selected a number of sectors that it believes will offer attractive growth prospects and investment opportunities. Diversification is also achieved by spreading investments across different asset classes and making investments for a variety of different periods.

The Manager's Review above, provides a review of the investment portfolio and of market conditions during the year, including the main trends and factors likely to affect the future development, performance and position of the business.

Risk is spread by investing in a number of different businesses within different qualifying industry sectors using a mixture of securities. The maximum the Company will invest in a single company (including a collective investment vehicle) is 15 per cent of its investments by value of its investments calculated in accordance with Section 278 of the Income Tax Act 2007 (as amended) ("VCT Value"). The value of an individual investment is expected to increase over time as a result of trading progress and a continuous assessment is made of its suitability for sale.

The Company invests in a range of securities including, but not limited to, ordinary and preference shares, loan stocks, convertible securities and permitted non qualifying investments as well as cash. Unquoted investments are usually structured as a combination of ordinary shares and loan stocks or preference shares, while AIM-traded investments are primarily held in ordinary shares. Pending investment in VCT qualifying investments, the Company's cash and liquid funds are held in permitted non qualifying investments.

VCTs are required to comply with a number of different regulations and the Company has appointed PricewaterhouseCoopers ("PwC") as VCT Tax Status Advisers to advise it on compliance with VCT requirements. PwC reviews new investment opportunities, as appropriate, and regularly reviews the investment portfolio of the Company. PwC works closely with the Manager and reports directly to the Board.

Environmental, Human Rights, Employee, Social and Community Issues

The Company seeks to conduct its affairs responsibly and the Manager is encouraged to consider environmental, human rights, social and community issues, where appropriate, with regard to investment decisions.

The Company is required, by company law, to provide details of environmental (including the impact of the Company's business on the environment), employee, human rights, social and community issues; including information about any policies it has in relation to these matters and the effectiveness of these policies. The Company does not have any employees and as a result does not maintain specific policies in relation to these matters.

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

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

The six principles of the Gresham House policy are:

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

2) Adopt a responsible and ethical approach to governance.

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

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

5) Promote awareness and adoption of ESG considerations.

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

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

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

Global Greenhouse Gas Emissions

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

Gender Diversity

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

Appointment of the Manager

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

The management agreement

Under the management agreement, the Manager receives a fee of 2.0 per cent per annum of the net assets of the Company. In addition, the Manager is responsible for providing all secretarial, administrative and accounting services to the Company for an additional fee. The Manager has appointed Link Alternative Fund Administrators Ltd to provide these services to the Company on its behalf. The Company is responsible for paying the fee charged by Link Alternative Fund Administrators Ltd to the Manager in relation to the performance of these services.

Annual running costs are capped at 3.5 per cent of the net assets of the Company (excluding any performance fee payable to the Manager and irrecoverable VAT), any excess being refunded by the Manager by way of an adjustment to its management fee. The running cost as at 30 September 2019 was 2.2 per cent.

The management agreement may be terminated at any date by either party giving 12 months' notice of termination and, if terminated, the Manager is only entitled to the management fees paid to it and any interest due on unpaid fees.

Performance fees

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

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

Management retention

The Board is keen to ensure that the Manager continues to have one of the best investment teams in the VCT and private equity sector. A VCT incentive scheme was introduced in November 2004 under which members of the Manager's investment team invest their own money into a proportion of the ordinary shares of each eligible unquoted investment made by the Baronsmead VCTs. The Board regularly monitors the VCT incentive scheme arrangements but considers the scheme to be essential in order to attract, retain and incentivise the best talent. The scheme is in line with current market practice in the private equity industry and the Board believes that it aligns the interests of the Manager with those of the Baronsmead VCTs.

Executives have to invest their own capital in every eligible unquoted transaction and cannot decide selectively which investments to participate in. In addition, the VCT incentive scheme only delivers a return after each VCT has realised a priority return built into the structure. The shares held by the members of the VCT incentive scheme in any portfolio company can only be sold at the same time as the investment held by the Baronsmead VCTs is sold. Any prior ranking financial instruments, such as loan stock, held by the Baronsmead VCTs have to be repaid in full together with the agreed priority annual return before any gain accrues to the ordinary shares. This ensures that the Baronsmead VCTs achieve a good priority return before profits accrue to the VCT incentive scheme.

Prior to January 2017, executives participating in the VCT incentive scheme subscribed jointly for a proportion (12 per cent) of the ordinary shares (but not the prior ranking financial instruments) available to the Baronsmead VCTs in each eligible unquoted investment. The level of participation was increased from 5 per cent in 2007 when the Manager's performance fee was reduced from 20 per cent to its current level of 10 per cent. With effect from January 2017, an additional limb was added to the VCT incentive scheme to accommodate the increasing number of "permanent equity" investments being made by the Baronsmead VCTs. "Permanent equity" investments are those in which the Baronsmead VCTs hold a relatively lower proportion of prior ranking instruments (if any at all) and a higher proportion of permanent equity or

ordinary shares. This means that there is less prior ranking instruments yielding a priority return for the Baronsmead VCTs before any gain accrues to the ordinary shares, hence this additional limb to create a hurdle described below. The cut off to define a "permanent equity" investment is one where permanent equity is greater than 25 per cent of the total or where permanent equity is greater than £250,000.

Under the terms of the amended VCT incentive scheme, in circumstances where the Baronsmead VCTs hold a sufficient number of prior ranking financial instruments (a "Traditional Structure"), the terms are identical to those set out above. However, in circumstances where the Baronsmead VCTs make a "permanent equity" investment, the executives participating in the incentive scheme are required to co-invest pari passu alongside the Baronsmead VCTs for a proportion (currently 0.75 per cent) of all instruments available to the Baronsmead VCTs and they also receive an option over a further proportion (currently 12 per cent) of the ordinary shares available to the Baronsmead VCTs. The ordinary shares can only be sold and the option can only be exercised by the scheme participants when the investment held by the Baronsmead VCTs is sold. The option exercise price has a built in hurdle rate to ensure that the options are only "in the money" if the Baronsmead VCTs achieve a good return (equivalent to the priority return they would have to achieve prior to any value accruing to the ordinary shares in a Traditional Structure).

Since the formation of the scheme in 2004, 82 executives have invested a total of £1,033,000 in 67 companies. At 30 September 2019, 42 of these investments have been realised generating proceeds of £338,000,000 for the Baronsmead VCTs and £18,000,000 for the VCT incentive scheme. For Baronsmead Venture Trust the average money multiple on these 42 realisations was 1.8 times cost. Had the VCT incentive scheme shares been held instead by the Baronsmead VCTs, the extra return to shareholders would have been the equivalent of 4.4p a share over 15 years (based on the current number of shares in issue). The Board considers this small cost to retain quality people to be in the best interests of shareholders.

Advisory and Directors' fees

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

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

Alternative Investment Fund Manager's Directive ("AIFMD")

The AIFMD regulates the management of alternative investment funds, including VCTs. On 22 July 2014 the Company was registered as a Small UK registered AIFM under the AIFMD.

Viability Statement

In accordance with principle 21 of the Association of Investment Companies Code of Corporate Governance ("AIC Code"), the Directors have assessed the prospects of the Company over the three year period to 30 September 2022. This period is used by the Board during the strategic planning process and is considered reasonable for a business of our nature and size.

The three year period is considered the most appropriate given the forecasts that the Board require from the Manager and the estimated timeline for finding, assessing and completing investments.

In making this statement the Board carried out a robust assessment of the principal risks facing the Company, including those that might threaten its business model, future performance, solvency, or liquidity. The Directors have considered the ability of the Company to comply on an ongoing basis with the conditions for maintaining VCT approval status.

The Board also considered the ability of the Company to raise finance and deploy capital. Their assessment took account of the availability and likely effectiveness of the mitigating actions that could be taken to avoid or reduce the impact of the underlying risks, and the large listed portfolio that could be liquidated if necessary.

This review has considered the principal risks as outlined above. The Board concentrated its efforts on the major factors which affect the economic, regulatory and political environment. The Board also paid particular attention to the importance of its close working relationship with the Manager, Gresham House.

The Directors have also considered the Company's income and expenditure projections and find these to be realistic and sensible.

Based on the Company's processes for monitoring costs, share price discount, the Manager's compliance with the investment objective, policies and business model, asset allocation and the portfolio risk profile, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to 30 September 2022.

Returns to Investors

Dividend policy

The Board will decide the annual dividends each year and the level of the dividends will depend on in-vestment performance, the level of realised returns and available liquidity. The dividend policy guidelines below are not binding and the Board retains the ability to pay higher or lower dividends relevant to prevailing circumstances and actual realisations. However, the Board confirms the following two guidelines that shape its dividend policy:

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

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

Shareholder choice

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

·; Fund raising | From time to time the Company seeks to raise additional funds by issuing new shares at a premium to the latest published net asset value to account for costs. The Company currently has an Offer open to raise up to £20 million.

·; Dividend Reinvestment Plan | The Company offers a Dividend Reinvestment Plan which enables shareholders to purchase additional shares through the market in lieu of cash dividends. Approximately 1,934,000 shares were bought in this way during the year 30 September 2019.

·; Buy back of shares | From time to time the company buys it own shares through the market in accordance with its share price discount policy. Subject to the likely impact on shareholders as a whole the funding requirements of the Company and market conditions at the time, the Company seeks to maintain a mid share price discount of approximately 5 per cent to net asset value where possible. However shareholders should note this discount may widen during the periods of market volatility.

·; Secondary market | The Company's shares are listed on the London Stock Exchange and can be bought using a stockbroker or authorised share dealing service in the same way as shares of any other listed company. Approximately 792,000 shares were brought by investors in the Company's existing shares in the year to 30 September 2019.

On behalf of the Board

Peter Lawrence

Chairman

22 November 2019

Extract of the Directors' Report

Shares and shareholders

Share capital

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

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

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

The maximum number of shares held in Treasury during the year was 19,297,982. Shares will not be sold out of Treasury at a discount wider than the discount at which the shares were initially bought back by the Company.

Shareholders

Each 10p ordinary share entitles the holder to attend and vote at general meetings of the Company, to participate in the profits of the Company, to receive a copy of the Annual Report & Financial Statements and to participate in a final distribution upon the winding up of the Company.

There are no restrictions on voting rights, no securities carry special rights and the Company is not aware of any agreement between holders of securities that result in restrictions on the transfer of securities or on voting rights. There are no agreements to which the Company is party that may affect its control following a takeover bid.

In addition to the powers provided to the Directors under UK Company Law and the Company's Articles of Association, at each AGM the shareholders are asked to authorise certain powers in relation to the issuing and purchasing of the Company's own shares. Details of the powers granted at the AGM held in 2019, all of which remain valid, can be found in the last notice of AGM.

The Board is not, and has not been throughout the year, aware of any beneficial interests exceeding 3 per cent of the total voting rights.

Tax free dividends

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

*Calculated on shares in issue as at 30 September 2019

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

Annual General Meeting

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

Directors

Appointments

The rules concerning the appointment and replacement of Directors are contained in the Company's Articles of Association and the Companies Act 2006. Further details in relation to the appointed Directors and the governance arrangements of the Board can be found in the full annual report and accounts.

Directors are entitled to a payment in lieu of three month notice by the Company for loss of office in the event of a takeover bid.

Directors' Indemnity

Directors' and Officers' liability insurance cover is in place in respect of the Directors. The Company's Articles of Association provide, subject to the provisions of UK legislation, an indemnity for Directors in respect of costs which they may incur relating to the defence of any proceedings brought against them arising out of their positions as Directors, in which they are acquitted or judgement is given in their favour by the Court.

Save for such indemnity provisions in the Company's Articles of Association and in the Directors' letters of appointment, there are no qualifying third party indemnity provisions in force.

Conflicts of Interest

The Directors have declared any conflicts or potential conflicts of interest to the Board of Directors which has the authority to approve such situations. The Company Secretary maintains the Register of Directors' Conflicts of Interests which is reviewed quarterly by the Board. Directors advise the Company Secretary and the Board as soon as they become aware of any conflicts of interest and do not take part in discussions which relate to any of their conflicts.

Responsibility for accounts

The Directors who held office at the date of approval of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's Auditor is unaware and each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company's Auditor is aware of that information.

Financial Instruments

The Company's financial instruments comprise equity and fixed interest investments, cash balances and liquid resources including debtors and creditors that arise directly from its operations such as sales and purchases awaiting settlement and accrued income. The financial risk management objectives and policies arising from its financial instruments and the exposure of the Company to risk are disclosed in note 3.3 of the accounts.

Going Concern

After making enquiries, and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. The Going Concern assumption assumes that the Company will maintain its VCT status with HMRC. In arriving at this conclusion the Directors have also considered the liquidity of the Company and its ability to meet obligations as they fall due for a period of at least 12 months from the date that these financial statements were approved. As at 30 September 2019, the Company held cash balances and investments in readily realisable securities with a value of £27,930,000. Cash flow projections have been reviewed and show that the Company has sufficient funds to meet both its contracted expenditure and its discretionary cash outflows in the form of the share buyback programme and dividend policy. The Company has no external loan finance in place and therefore is not exposed to any gearing or covenants.

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

Listing Rule Disclosure

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

By Order of the Board

Gresham House Asset Management Ltd

Secretary

5 New Street Square London EC4A 3TW

22 November 2019

Statement of Directors' Responsibilities in respect of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK Accounting Standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:

·; select suitable accounting policies and then apply them consistently;

·; make judgements and estimates that are reason able and prudent;

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

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

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

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

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

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

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

We confirm that to the best of our knowledge:

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

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

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

On behalf of the Board

Peter Lawrence

Chairman

22 November 2019

NON-STATUTORY ACCOUNTS

The financial information set out below does not constitute the Company's statutory accounts for the years ended 30 September 2018 and 2019 but is derived from those accounts. Statutory accounts for 2018 have been delivered to the Registrar of Companies, and those for 2019 will be delivered in due course. The Auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditors' report can be found in the Company's full Annual Report and Accounts at www.baronsmeadvcts.co.uk 

Income Statement

For the year ended 30 September 2019

All items in the above statement derive from continuing operations.

There are no recognised gains and losses other than those disclosed in the Income Statement.

The revenue column of the Income Statement includes all income and expenses. The capital column accounts for the realised and unrealised profit or loss on investments and the proportion of the management fee charged to capital.

The total column of this statement is the Statement of Total Comprehensive Income of the Company prepared in accordance with Financial Reporting Standards ("FRS") 102. The supplementary revenue return and capital return columns are prepared in accordance with the Statement of Recommended Practice issued in November 2014 and updated in January 2017 by the Association of Investment Companies ("AIC SORP").

Statement of Changes in Equity

For the year ended 30 September 2019

There were no share Premium cancellation costs in the 2019 year

For the year ended 30 September 2018

Balance Sheet

As at 30 September 2019

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

Peter Lawrence

Chairman

Statement of Cash Flows

For the year ended 30 September 2019

Notes to the Financial Statements

We have grouped notes into sections under three key categories:

1. Basis of preparation

2. Investments, performance and shareholder returns

3. Other required disclosures

1. Basis of Preparation

1.1 Basis of accounting

2. Investments, performance and shareholder returns

2.1 Net asset value per share

2.2 Return per share

2.3 Investments

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.

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

2.4 Dividends

2.5 Income

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

‡ Other income on financial assets not including at fair value through profit or loss.

2.6 Investment management fee and other expenses

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

The Manager, Gresham House Asset Management Ltd, receives a fee of 2 per cent per annum of the net assets of the Company, calculated and payable on a quarterly basis. The collective investment vehicles, Micro Cap and Multi Cap, are also managed by Gresham House. Arrangements are in place to avoid the double charging of fees.

The Manager is entitled to a performance fee if at the end of any calculation period, the total return on shareholders' funds exceeds the threshold of the higher of 4 per cent or base rate plus 2 per cent on shareholders' funds (calculated on a compound basis). The Manager is entitled to 10 per cent of the excess. The amount of any performance fee which is paid in respect of a calculation period shall be capped at 5 per cent of shareholders' funds at the end of the period.

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

Other expenses

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

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

Charges for other services provided by the auditors in the year ended 30 September 2019 were in relation to the interim review. The Audit Committee reviews the nature and extent of non-audit services to ensure that independence is maintained. The Directors consider that the auditors were best placed to provide such services.

2.7 Debtors

2.8 Creditors (amounts falling due within one year)

2.9 Tax

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

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

3. Other Required Disclosures

3.1 Called-up share capital

Allotted, called-up and fully paid:

* Carrying one vote each.

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

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

Treasury shares

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

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

- It is in the best interests of the Company;

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

- A full prospectus must be produced if required; and

- HMRC will not consider these 'new shares' for the purpose of the purchasers' entitlement to initial income tax relief.

3.2 Reserves

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

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

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

The Company does not have any externally imposed capital requirements.

3.3 Financial instruments risks

The Company's financial instruments comprise equity and fixed interest investments, cash balances and liquid resources including debtors and creditors. The Company holds financial assets in accordance with its investment policy to invest in a diverse portfolio of UK growth businesses.

The Company's investing activities expose it to a range of financial risks. These key risks and the associated risk management policies to mitigate these risks are described below.

Market risk

Market risk includes price risk on investments and interest rate risk on investments and other financial assets and liabilities.

Price Risk

The investment portfolio is managed in accordance with the policies and procedures described in the full annual report and accounts of the Strategic Report.

Investments in unquoted companies, by their nature, usually involve a higher degree of risk than investments in companies quoted on a recognised stock exchange. The Company aims to mitigate these risks by diversifying the portfolio across business sectors and asset classes.

Investments in companies listed on the AIM market usually involve a higher risk than investments in larger companies quoted on a recognised stock exchange. The spread between the buying and selling price of such shares may be wide and the price used for valuation may be limited and many may not be achievable. The valuation of the Portfolios and opportunities for realisation of AIM-traded investments with the portfolios may also depend on stock market conditions.

The Company aims to reduce these risks by diversifying the portfolio across business sectors and asset classes. The Board monitors the portfolio on a quarterly basis.

Valuation methodology includes the application of earnings multiples derived from either listed companies with similar characteristics or recent comparable transactions. Therefore the value of the unquoted element of the portfolio may also indirectly be affected by price movements on the listed exchanges.

Price Sensitivity

The fair valuation of unquoted investments is influenced by the estimates, assumptions and judgements made in the fair valuation process (see 2.3 above). A sensitivity analysis is provided below which recognises that the valuation methodologies employed involve different levels of subjectivity in their inputs. The sensitivity analysis below is applied a wider range of input variable sensitivity to the earnings multiple method due to the increased subjectivity involved in the use of this method compared to the rebased cost method, which refers to the price of a recent investment.

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

**Latest share price is set by the market.

Interest rate risk

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

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

Credit risk

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

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

Credit risk on unquoted loan stock held within unlisted investments is considered to be part of market risk as disclosed earlier in the note.

Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions is considered to be small due to the short settlement period involved and the high credit quality of the brokers used. The Board monitors the quality of service provided by the brokers used to further mitigate this risk.

All the assets of the Company which are traded on a recognised exchange are held by JP Morgan Chase ("JPM"), the Company's custodian. The Board monitors the Company's risk by reviewing the custodian's internal controls reports as described in the Corporate Governance section within the full Annual Report and Accounts.

The cash held by the Company is held by JPM. The Board monitors the Company's risk by reviewing regularly the internal control reports. Should the credit quality or the financial position of the bank deteriorate significantly the Investment Manager will seek to move the cash holdings to another bank.

There were no significant concentrations of credit risk to counterparties at 30 September 2019 or 30 September 2018. No individual investment exceeded 5.3 per cent of the net assets attributable to the Company's shareholders at 30 September 2019 (2018: 4.8 per cent).

Liquidity risk

The Company's financial instruments include investments in unquoted companies which are not traded in an organised public market, all of which generally may be illiquid. AIM traded equity investments also carry a degree of liquidity risk. As a result, the Company may not be able to liquidate quickly some of its investments in these instruments at an amount close to their fair value in order to meet its liquidity requirements, or to respond to specific events such as deterioration in the creditworthiness of any particular issuer.

The Company's liquidity risk is managed on an ongoing basis by the Investment Manager. The Company's overall liquidity risks are monitored on a quarterly basis by the Board.

The Company maintains sufficient investments in cash and readily realisable securities to pay accounts payable and accrued expenses. At 30 September 2019 these investments were valued at £27,930,000 (2018: £30,110,000).

3.4 Investment in Associates

The Company has chosen not to rebut the presumption that the following holdings are investments in associates, owing to the proportion of equity held and representation on the board representing significant influence over the operations of the company. The investments held are held as part of an investment portfolio, and are therefore measured at fair value through profit and loss, as detailed in note 2.3, rather than using the equity method, as permitted by section 14 of FRS 102:

3.5 Related parties

Related party transactions include Management, Secretarial, Accounting and Performance fees payable to the Manager, Gresham House Asset Management Ltd, as disclosed in notes 2.6 and 2.8, and fees paid to the Directors along with their shareholdings as disclosed in the Directors' Remuneration Report. In addition, the Manager operates a VCT Incentive Scheme, detailed in the Management retention section of the Strategic Report in the full annual report and accounts, whereby members and staff of the Manager are entitled to participate in all eligible unquoted investments alongside the Company.

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

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

A related party relationship exists between Baronsmead Venture Trust and Happy Days Consultancy, owing to the significant influence held over the operations of the company. As at 30 September 2019, the loan balance stood at £5,027,000, including £1,950,000 of capitalised interest.

The Company also holds an investment in Gresham House plc, as part of its quoted portfolio. This investment was made in November 2014, prior to the change of investment manager. For further details on this please refer to the Full Investment Portfolio in the Appendices.

3.6 Segmental reporting

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

3.7 Post balance sheet events

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

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

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

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

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

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

National Storage Mechanism

A copy of the Annual Report and Financial Statements will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at: http://www.morningstar.co.uk/uk/NSM

Corporate Information

# Senior Independent Director and Chairman of the Nomination Committee