BARONSMEAD SECOND VENTURE TRUST PLC 
By
Baronsmead VCT 3 plc
Annual report & accounts for the year ended 31 December 2013
Financial Headlines
? Net asset value ("NAV") per share increased 12.9 per cent. to 120.9p in the
year ended 31 December 2013, before deduction of dividends.
? Dividend payments of 7.5p for the year to 31 December 2013.
? Net annual dividend yield was 7.1 per cent. and gross annual yield was 9.4
per cent.
? 245.4p - NAV total return to shareholders for every 100.0p invested at launch.
Extract of the Strategic Report
The Strategic Report included in the Annual Report and Accounts for the year to
31 December 2013 has been prepared in accordance with the requirements of
Section 414 of the Companies Act 2006 and best practice. Its purpose is to
inform the members of the Company and help them to assess how the Directors
have performed their duty to promote the success of the Company, in accordance
with Section 172 of the Companies Act 2006.
The Company is registered in England as a Public Limited Company (Registration
number 04115341). The Directors have managed, and intend to continue to manage,
the Company's affairs in such a manner as to comply with Section 274 of the
Income Tax Act 2007 which grants approval as a VCT.
Investment Objective
Baronsmead VCT 3 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.
Further details on how this is achieved is contained in the "Other Matters"
section of the Strategic Report below.
Cash Returned to Shareholders
The table and chart below shows the cash returned to shareholders dependent on
their subscription cost, including their income tax reclaimed on subscription.
Income cumulative Net Gross
Subscription tax Net cash dividends annual equivalent
price reclaim invested paid yield* yield?
Year subscribed p p p p % %
2001 (January) 100.00 20.00 80.00 78.30 7.6% 10.1%
2005 (March) - C 100.00 40.00 60.00 45.54 8.6% 11.4%
share
2010 (March) 103.09 30.93 72.16 30.00 11.0% 14.7%
2012 (December) 117.40 35.22 82.18 12.00 14.2% 18.9%
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.
* Net annual yield represents the cumulative dividends paid expressed as a
percentage of the net cash invested.
? The gross equivalent yield if the dividends had been subject to the higher
rate of tax on dividends (currently 32.5 per cent.). For those shareholders who
earn over £150,000 per tax year and who would otherwise pay this additional
rate of tax on dividends, the gross equivalent yield will be higher than the
figures stated above.
Dividends paid to C shareholders post conversion have been adjusted by the
conversion ratio (0.85642528).
Chairman's Statement
This Chairman's Statement forms part of the Strategic Report.
I am pleased to report that the Company had a good year and the Net Asset Value
("NAV") before payment of dividends increased by 13.78p a share (12.86 per
cent.). The total dividend for the year was 7.5p, in the form of two interim
dividends paid in September and December 2013. On 12 February 2014, the Company
declared an interim dividend of 8.0p per share payable on 7 March 2014 to
shareholders on the register as of 21 February 2014.
RESULTS
Analysis of change in NAV over the year
Pence per
ordinary
share
NAV as at 1 January 2013
(after deducting the final dividend of 4.5p for the year to 31
December 2012) 107.12
Valuation uplift (12.86 per cent.) 13.78
NAV as at 31 December 2013 before dividends 120.90
Interim dividend paid on 20 September 2013 (3.00)
Second interim dividend paid on 20 December 2013 (4.50)
NAV as at 31 December 2013 after paying dividends 113.40
Our portfolio is diverse and this has helped to smooth investor returns from
year to year. The unquoted portfolio has seen several years of strong growth but last year the return was
more modest, principally because many of the current investments are relatively new and therefore will
take some time before they start delivering value growth. We remain focused primarily on unquoted
investments and the Manager is now working to help these newer investments achieve their potential for
growth in future years.
This year's investment performance has been achieved mainly due to the 32.6 per cent. growth in the quoted portfolio. This performance was partly due to the rise in quoted values, resulting from a welcome return of investor appetite for
smaller quoted companies, but is also a vindication of the distinctive approach to quoted investment strategy the Manager had developed over the past five years. Since 2008 it has taken larger stakes in selected AIM companies in order
to become a more influential partner. This has enabled it to introduce some private equity experience and disciplines to these investments with a view to growing value and achieving satisfactory exits. In addition, during the downturn in the markets following the financial crisis, the Manager took a long term view and continued to invest in companies with strong fundamentals rather than overreact to market sentiment.
As a result of an active year of new investment and realisations, the portfolio
has increased to 71 investments. New and follow-on investments totalled £8.9
million across ten unquoted, one ISDX (ICAP Securities & Derivatives Exchange
(formerly PLUS Markets Group plc.)) and fifteen AIM companies. Sales of
investments realised capital proceeds of £16.5 million and delivered net gains
of £8.1 million. The portfolio as a whole, remains in good health with 80 per
cent. of investees reporting steady or improving performance against their
business plans.
LONG TERM PERFORMANCE
The Company's investment objective remains focussed on companies with strong
growth potential so as to produce consistently high returns for shareholders over the long-term.
This year's strong performance has increased the NAV total return for each 100p
invested in Baronsmead VCT 3 to 217.8p over ten years (245.4p since launch in
2001). Cumulative tax free dividends during that period have amounted to 69.0p
per share (78.3p per share for founder shareholders at launch in 2001).
SHAREHOLDER MATTERS
Dividends
The Company paid dividends totalling 7.5p per share for the financial year to
31 December 2013. Following several profitable realisations, in February 2014, the Directors declared an
interim dividend of 8.0p per share payable on 7 March 2014. It is the Board's current expectation that this
interim dividend will be in lieu of the dividend that would normally be declared following the half-yearly results
for the six-months to 30 June 2014. This pays the dividend to the Company's existing shareholders who benefit
from the returns realised in 2013 prior to new shares being allotted with respect to subscriptions to the Company's fundraising.
Fundraising
An offer for subscription to raise gross proceeds of up to £10 million was
launched on 22 January 2014. Based on subscriptions to date, it is expected that the Company's offer will be
fully subscribed shortly.
Share price discount policy
In November 2012 the Company announced that it would seek to narrow the mid share price discount to
NAV from 10 per cent.to 5 per cent. I am pleased to report that during the twelve months to 31 December
2013 the targeted reduction has been largely achieved with the mid share price discount to NAV averaging
4.7 per cent. for the year.
It is the Board's intention to try to maintain this discount to NAV, however,
this policy will be kept under continuous review and may be subject to revision
if necessary. Shares will be bought back depending on market conditions at the
time and only where the Directors believe such a transaction to be in the best
interests of all shareholders.
VCT legislation
In its Autumn Statement, issued on 5 December 2013, HM Treasury ("HMT")announced its intention to introduce legislation with effect from 6 April 2014 to prevent the use of "Enhanced Share Buy Backs" by VCTs. Since the Board has never used these arrangements, having preferred to create an orderly market for all shareholders through maintaining a narrow share price discount, this legislation will have
no impact on the Company.
HMT also indicated in the Autumn Statement that it wished to consult further on
potential changes to VCT rules to address the potential misuse of reserves
created from converted share premium accounts. They are concerned that in some circumstances this reserve may be used to return capital to shareholders prior to any profits being generated from investments. The Manager has participated
in this consultation alongside other VCT Managers and the Association of Investment Companies ("AIC") with the aim of ensuring that any draft legislation process would not result in any unintended adverse consequences for the industry.
The European Commission is currently undertaking a review of the state aid regulations including the risk
capital guidelines under which VCTs are approved at the European level. The aim of the review is to set out
a clear framework to allow member states to grant aid without the need for the European Commission to be
involved. Our trade association, the AIC is engaged in the discussion and the Manager has provided data and case studies to assist the construction of a suitable response.
Management Arrangements
The Board has considered the impact on your Company of the Alternative
Investment Fund Managers Directive ("AIFMD"), an EU Directive that came into
force in July 2013 to regulate the Managers of Alternative Investment Funds.
The legislation provides for Investment Trusts and VCTs to opt to become self
managed for the purposes of the Directive, which would result in the Company
becoming the Alternative Investment Fund Manager ("AIFM"). The legislation also
provides that AIFMs that manage assets under ?500m can take advantage of a
light touch regime and register as Small Registered Managers which only imposes
some minimal additional reporting on the AIFM. To minimise the cost of
compliance with this Directive the Board has decided that the Company will
register as the AIFM. This development will not impact on the day to day
investment activities other than the need to novate the Investment Management
Agreement to a sister partnership of our current Manager, ISIS EP LLP,
controlled and managed by the same individuals.
Annual General Meeting
I look forward to meeting as many shareholders as possible at our thirteenth
Annual General Meeting to
be held on Monday, 14 April 2014 at Plaisterers' Hall, One London Wall, London,
EC2Y 5JU at 10.30 a.m. This will be followed by presentations from the Manager,
a light lunch and a joint shareholder workshop with Baronsmead VCT 5's
shareholders.
OUTLOOK
There is growing evidence that the long awaited recovery of the UK economy is
now underway and there is a greater degree of optimism than there has been for
many years. The investment environment has been challenging over the past five
years but the Investment Manager has built a strong capability in its chosen
sectors and a market leading origination team and this enabled it to continue
to find good investments despite the downturn. The addition of six new unquoted
companies during 2013 hopefully signals a sustainable increase in the number of
good investment opportunities and we believe that the Manager is well placed to
take advantage of this.
The successful realisation of many unquoted companies has generated excellent
returns but the remaining portfolio is now relatively immature. It remains
widely diversified, well resourced and adequately funded and the Investment
Manager has the skill and experience to support and help these investments in
their development. We believe that the Company is well placed to take advantage
of the recovery as it gathers momentum. We will continue to focus on delivering
a consistent yield for shareholders while protecting the asset base.
Anthony Townsend
Chairman
17 February 2014
Manager's Review
The year has seen very different performance contributions from the quoted and
unquoted portfolios. Firstly strong upward performance has been delivered by
the quoted portfolio which is a welcome reward for patience through an
uncertain market over recent years. This has also enabled a level of net
divestment from the quoted portfolio as profits have been crystallised into
cash, although the significant value growth has still resulted in an increase
in the quoted NAV during the period.
The unquoted portfolio has seen a significant refreshment in assets. There was
a high level of new unquoted investment with six new unquoted investee
companies added to the portfolio and a further one added since the end of the
financial year. This is the busiest period of investing for some years. In
addition, there has been a high rate of divestment from the unquoted portfolio
with some long held investments being realised. The unquoted portfolio has
therefore not contributed much to NAV growth this period as a higher proportion
of the portfolio is relatively new.
PORTFOLIO REVIEW
Overview
The net assets of £74.9 million were invested as follows:
Asset class NAV % of Number of Annual return
(£m) NAV investees %
Unquoted 28.3 38 26 0.6
Quoted 28.9 38 45 32.6
Wood Street Microcap 7.0 9 37 55.0
Cash and near cash 10.7 15 - -
During the year there were;
?New investments of £7.4 million in 13 new companies and £1.5 million in 13
follow ons;
? Divestment proceeds of £19.8 million from 8 full exits and 4 partial
realisations.
Each quarter the direction of general trading and profitability of all investee
companies is recorded so that the Board can monitor the overall health and
trajectory of the portfolio. At 31 December 2013, 80 per cent. of the 71
companies in the portfolio (excluding Wood Street Microcap) were progressing
steadily or better.
The level of quoted assets in the NAV is at a higher proportion than seen in
recent periods. This is due to the combination of high growth in quoted values
together with the high rate of unquoted divestments. The Manager continues to
invest significantly more during each year in unquoted investments over new
quoted investments.
Unquoted Private Equity Portfolio
After a strong year of growth last year of 8 per cent., the unquoted portfolio
has stayed flat during 2013. The unquoted portion of the portfolio is valued
using a consistent process every three months which the Board oversees and
approves. Almost all of the value creation in unquoted investments comes from
operational improvements (revenue and margin growth), rather than financial
leverage. The reason the unquoted portfolio is flat this year is that a high
proportion of investments are relatively young and have not yet started
contributing to value growth.
The year delivered a series of strong realisations, including the pleasing
contribution of three of these being longstanding holdings made in 2005 and 2006.
? Independent Living Services Limited, the care business based in Scotland, has
been in the portfolio since 2005 and was sold to Mears Group plc generating a
profit multiple of 2.5x cost.
? MLS Limited, the school library software business, was an investment from
2006 that realised 2.8x cost on its sale to Capita plc.
? Kafevend Holdings Limited is a leading UK vending provider added to the
portfolio in 2005 that has been sold to trade buyer Eden Springs UK Ltd
realising 2.5x cost.
? CSC (World) Limited providing software for structural engineers was sold to
US trade buyer Trimble Navigation Inc. generating 2.4x cost.
? CableCom Networking Holdings Limited has been in the portfolio since 2007 and
manages internet services to high density accommodation such as student
accommodation. The business has been sold via a secondary management buy-out
and the realisation has delivered 4.8x cost which is an excellent result. A £5
million investment (£1.25 million for Baronsmead VCT3) has been negotiated in
the new transaction on the same terms as the lead private equity buyer as ISIS
believes there is an opportunity for further growth.
Overall this represents a strong and consistent realisation performance. This
level of realisations represents a much higher proportion of the unquoted
portfolio than would be seen in an average year. The level of realisations in
the short term will be lower and the unquoted element of NAV should therefore
grow in the next few years.
Quoted Portfolio (AIM traded and other listed investments)
There has been a significant uplift in the quoted portfolio of 33 per cent.
reflecting a positive re-rating of the small cap sector in the year. This
recovery has been welcome following recent years of headwinds from a
challenging AIM market environment and weak share prices.
The performance of the quoted portfolio also reflects the changes introduced by
the ISIS Quoted Investment team since 2009. The Quoted team is now more likely to build progressive
stakes. An investment in a new smaller company might start at an initial low level. As the team becomes more
comfortable with performance and where it is possible within the constraints of VCT qualifying investing,
the holding will be increased. Several more significant holdings of over 20 per cent. have now been built where the team has a closer, more influential relationship and can utilise some of the good practice from our Private Equity
experience. In addition, during the weaker AIM market, the team endeavoured to focus on the fundamentals of the investees and demonstrated patient support when market sentiment depressed share prices of sound companies. The ISIS team believes the benefits of this work are now contributing to improved Quoted performance in addition to the recovery of the Quoted markets.
Realisations during the year from the quoted portfolio totalled £3.4 million at
an average multiple of 2.0x cost which is an excellent result. Notably within
this is the full realisation due to a takeover of FFastFill plc (2.8x cost) and
the partial sales in the market of IDOX plc (at 5.7x cost). A notable
disappointment in the quoted portfolio was the failure of Zattikka plc
resulting in the full loss of the £315k investment made in April 2012.
Whilst it is expected that work in the Quoted arena will deliver future
positive returns, the high annual growth achieved in this period should be
considered as exceptional.
Wood Street
Wood Street Microcap Investment Fund ("Wood Street") was established by ISIS in
May 2009 to provide flexibility for the Baronsmead VCTs to invest in larger and
more liquid non VCT qualifying AIM and Small Cap opportunities. It represents
another innovation introduced by the ISIS Quoted team to seek performance
improvement. At 31 December 2013, Baronsmead VCT 3 had invested £3.5 million
through Wood Street into a portfolio of 37 companies, now valued at £7.0
million. Wood Street generated a positive return of 55 per cent. over the year.
Liquid assets (cash and near cash)
Baronsmead VCT 3 had cash and near cash resources of approximately £10.7 million at the year-end. This asset class is conservatively managed to take minimal or no capital risk, a strategy outlined in prospectuses that have been issued in the past.
In addition, investments within the Wood Street fund are expected to be
relatively more liquid than other investments as explained in the section
above. This gives the Manager the possibility of realising cash from Wood
Street should this ever be required to supplement liquid assets.
Unquoted Investments
During the year, £7.3 million was invested in 11 unquoted companies including 7
new additions to the unquoted portfolio, one of which utilised an existing acquisition vehicle. The
new unquoted investments were;
? Create Health is an internationally renowned fertility clinic which is the
UK's leading specialist in natural and mild IVF techniques. Natural and mild
IVF uses lower levels of drugs and is viewed as more ethical and healthier - it
is used widely in advanced overseas fertility markets and is growing in
popularity in the UK. The investment will fund the opening of a new flagship
site in London.
? Eque2 is a software business that was previously owned by Sage plc and known
as Sage Construction. It provides enterprise wide software systems that cater
for firms of all sizes in the construction industry, helping them to control
and manage all types of construction projects.
? Armstrong Craven is an HR consultancy and provider of specialist executive
search services to many large global and national clients. It has offices in
Manchester and London. The ISIS support helped the original founder and
management team acquire the business from its parent plc in a Management Buy
Out.
? Luxury for Less is a fast growing online bathroom products retailer which
operates the transactional website www.bathempire.com. ISIS will help the
business expand its range and help fund new facilities to support growth. The
investment was made by using an already established acquisition vehicle and
therefore is not listed as a new investment in the tables below.
? Key Travel is a leading travel management company dedicated to serving the
travel requirements of the not-for-profit, academic and faith sectors from its
bases in the UK, Europe and the US. Major clients include Oxfam, Save the
Children and Cambridge University. Travel arranged for clients will break
through the £100 million mark this year. The investment will help support the
continued growth of the business.
? Carousel Logistics Limited based in Kent, designs and manages bespoke supply
chain management solutions for clients with time critical, challenging or high touch customer
care needs. Carousel has a range of international clients for whom it delivers
a complete integrated service including e-fulfilment, procurement, warehousing,
distribution, reverse logistics and international in-night services. ISIS will
support Carousel's continued business expansion within the UK and continental Europe.
Top Ten Investments
The average investment value of the top ten companies held by Baronsmead VCT 3
is £2.3 million per company. Because these investments are normally held by the other Baronsmead
VCTs, the total managed by ISIS in each investee is significantly larger than
this, which enables ISIS to dedicate significant resource to manage each
investment and their progress. The top ten investees employ some 2,800 people, which is
an increase of 16 per cent. over the last year. Their turnover has also grown
by some 15 per cent. Each of the top ten companies is described in more detail below.
Investment Management
ISIS continues to invest in its skills and capacity with over 35 of its total
team of 60 devoted to investment management activities across all its investing activities. Its focus is on
generating strong investment returns from its portfolio through a mixture of
intelligent investment selection and hands on portfolio management. Its ability
to select good investments owes much to its sector research and to its strong
origination team that help the team to generate proprietary deal flow.
Its investments are supported from the outset by an experienced internal value
enhancement team together with a panel of proven Operating Partners who work exclusively with ISIS to
assist management teams to deliver both strategic development and operational efficiencies. Both have
enabled ISIS to build a strong track record of producing consistent returns from its unquoted investments.
ISIS has pursued a strategy of sector specialisation over many years and in
that time its executives have
developed in-depth knowledge of these sectors and valuable networks of contacts
which have enabled it to capitalise on opportunities that have presented
themselves in an ever changing environment. Its key sectors are:
? Business Services
? Financial Services
? Consumer Markets
? Healthcare & Education
? Technology, Media and Telecommunications
OUTLOOK
Our portfolio companies and their management teams are now more experienced at
handling economic uncertainties, including managing their growth and operations in a tougher
environment than in previous decades. Low bank borrowings within the portfolio
give them robust financial structures.
ISIS is an active investment manager which partners with our investees to help
them to grow revenue and earnings and build resilient, well invested businesses, able to maintain
standards, whilst growing. Our intention is to seek out the best opportunities where growth is driven by
innovation and gaining market share through differentiation rather than relying on favourable economic growth.
ISIS EP LLP
Investment Manager
17 February 2014
Other Matters
Dividend policy
The Board of Baronsmead VCT 3 has the objective to maintain a minimum annual
dividend level of around 4.5p per ordinary share if possible, but this depends
primarily on the level of realisations achieved and cannot be guaranteed.
Since 2007, the average annual tax free dividend paid to shareholders has been
7.5p per share (equivalent to a pre-tax return of 10.0p per share for a higher
rate taxpayer). For shareholders who received up front tax reliefs, their returns would have been higher.
Share price discount policy
The Company buys back its shares if, in the opinion of the Board, a repurchase
would be in the best interests of the Company's shareholders as a whole. Shares
are bought back through the market rather than directly from shareholders. This
minimises the number of shares bought back by the Company while maximising the opportunity for investors to invest in the Company's existing shares.
The Board's current policy is to seek to maintain a mid share price discount of approximately 5 per cent. to net asset value, depending on market conditions at the time.
Strategy for achieving objectives
Baronsmead VCT 3 is a tax efficient listed company which aims to achieve
long-term investment returns for private investors, including tax free
dividends.
Investment policy
The Company's investment policy is 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.
Investment securities
The Company invests in a range of securities including, but not limited to,
ordinary and preference shares, loan stocks, convertible securities and fixed
interest bearing securities as well as cash. Unquoted investments are usually
structured as a combination of ordinary shares and loan stocks, while
AIM-traded investments are primarily held in ordinary shares. Pending
investment in VCT qualifying and non-VCT qualifying unquoted, AIM-traded and
other quoted securities (which may be held directly or indirectly through
collective investment vehicles), cash is primarily held in interest bearing
accounts, money market open ended investment companies ("OEICs"), UK gilts and
treasury bills.
UK companies
Investments are primarily made in companies which are substantially based in
the UK, although many of these investees may have some trade overseas.
VCT regulation
The investment policy is designed to ensure that the Company continues to
qualify and is approved as a VCT by HM Revenue and Customs. Amongst other
conditions, the Company may not invest more than 15 per cent. By value of its
investments calculated in accordance with section 278 of ITA 2007 (as amended)
(VCT Value) in a single company or group of companies and must have at least 70
per cent. of its investments by VCT Value throughout the period in shares and
securities comprised in qualifying holdings. At least 70 per cent. by VCT Value
of qualifying holdings must be in "eligible shares", which are ordinary shares
which have no preferential rights to assets on a winding up and no rights to be
redeemed, but may have certain preferential rights to dividends. For funds
raised before 6 April 2011, at least 30 per cent. by VCT Value of qualifying holdings must be in "eligible shares" which are ordinary shares which do not carry any rights to be redeemed or preferential
rights to dividends or to assets on a winding up. At least 10 per cent. of each
qualifying investment must be in "eligible shares".
The companies in which investments are made must have no more than £15 million
of gross assets at the time of investment to be classed as a VCT qualifying
holding.
Asset mix
The Company aims to be at least 90 per cent. invested, directly or indirectly,
in VCT qualifying and non-qualifying growth businesses subject always to the
quality of investment opportunities and the timing of realisations. It is intended that at least 75 per cent. of any funds raised by the Company will be invested in VCT qualifying investments. Non-VCT qualifying investments held in unquoted, AIM-traded and other quoted companies may be held directly or indirectly through collective investment vehicles.
Risk diversification and maximum exposures
Risk is spread by investing in a number of different businesses within
different qualifying industry sectors using a mixture of securities. Generally no more than £2.5 million, at cost, is
invested in the same company. The maximum the Company will invest in a single company (including a collective
investment vehicle) is 15 per cent. of its investments by 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.
Investment style
Investments are selected in the expectation that the application of private
equity disciplines including an active management style for unquoted companies will enhance value and enable
profits to be realised from planned exits.
Co-investment with other Baronsmead VCTs
The Company aims to invest in larger more mature unquoted and AIM-traded companies and to achieve this it invests alongside the other Baronsmead VCTs.
Management retention
Certain members and employees of the Manager invest in unquoted investments
alongside the Company. This scheme is in line with current practice of private
equity houses and its objective is to attract, recruit, retain and incentivise
the Manager's team and is made on terms which align the interests of
shareholders and the Manager.
Borrowing powers
The Company's policy is to use borrowing for short term liquidity purposes only
up to a maximum of 25 per cent. of the Company's gross assets, as permitted by
the Company's articles. The Company currently has no borrowings.
Management
The Board has delegated the management of the investment portfolio to the
Manager. The Manager also provides or procures the provision of company
secretarial, accounting, administrative and custodian services to the Company.
The Manager has adopted a 'top-down, sector-driven' approach to identifying and
evaluating potential investment opportunities, by assessing a forward view of firstly the business
environment, then the sector and finally the specific potential investment
opportunity.
Based on its research, the Manager has selected a number of sectors that it
believes will offer attractive growth prospects and investment opportunities.
Diversification is also achieved by spreading investments across different
asset classes and making investments for a variety of different periods.
The Manager's Review above provides a review of the investment portfolio and of
market conditions during the year, including the main trends and factors likely
to affect the future development, performance and position of the business.
Principal risks, risk management and regulatory environment
The Board believes that the principal risks faced by the Company are:
- Economic risk - events such as an economic recession and movement in interest
rates could affect smaller companies' valuations.
- Loss of approval as a Venture Capital Trust - the Company must comply with
Section 274 of the Income Tax Act 2007 which allows it to be exempted from
corporation tax on capital gains. Any breach of these rules may lead to the
Company losing its approval as a VCT, qualifying shareholders who have not held
their shares for the designated holding period having to repay the income tax
relief they obtained and future dividends paid by the Company becoming subject to tax. The Company would also
lose its exemption from corporation tax on capital gains.
- Investment and strategic - an inappropriate strategy, poor asset allocation
or consistent weak stock selection might lead to under performance and poor returns to shareholders.
Therefore the Company's investment strategy is periodically reviewed by the
Board which considers at each meeting the performance of the investment portfolio.
- Regulatory - the Company is required to comply with the Companies Act 2006,
the rules of the UK Listing Authority and United Kingdom Accounting Standards.
Breach of any of these might lead to suspension of the Company's Stock Exchange
listing, financial penalties or a qualified audit report. General changes in
legislation, regulations or government policy could significantly influence the
decisions of investors or impact upon the markets in which the Company invests.
- Reputational - inadequate or failed controls might result in breaches of
regulations or loss of shareholder trust.
- Operational - failure of the Manager's accounting systems or disruption to
its business might lead to an inability to provide accurate reporting and
monitoring.
- Financial - the Board has identified the Company's principal financial risks
which are set out in the Notes to the Accounts. Inadequate controls might lead
to misappropriation of assets or fraud. Inappropriate accounting policies might
lead to misreporting or breaches of regulations.
- Market risk - investment in AIM-traded and unquoted companies, by its nature,
involves a higher degree of risk than investment in companies traded on the
main market. In particular, smaller companies often have limited product lines,
markets or financial resources and may be dependent for their management on a
smaller number of key individuals. In addition, the market for stock in
smaller companies is often less liquid than that for stock in larger companies,
bringing with it potential difficulties in acquiring, valuing and disposing of
such stock.
- Liquidity risk - the Company's investments may be difficult to realise. The
fact that a share is traded on AIM does not guarantee its liquidity. The spread
between the buying and selling price of such shares may be wide and thus the
price used for valuation may not be achievable.
- Credit risk - Cash management risk may occur by placing cash deposits with
high risk institutions or not spreading cash effectively. The cash management
strategy is set by the Board and the Investment Committee of the Manager
approves all liquid asset investments. Due diligence is undertaken on the
sponsor or manager of any non-government instruments invested in and this is
updated on a regular basis to minimise the risk.
- Competitive risk - retention of key personnel of the Manager is vital to the
success of the Company. Appropriate incentives are in place to ensure retention of such personnel. The
Board seeks to mitigate the internal risks by setting policy, regular review of
performance, enforcement of contractual obligations and monitoring progress and compliance. In the mitigation and management of these risks, the Board applies rigorously the principles detailed in the Financial
Reporting Council's ("FRC") "Internal Controls: Guidance to Directors". Details of the Company's internal controls are contained in the Corporate Governance section of this report.
Performance and Key Performance Indicators ("KPIs")
The Board expects the Manager to deliver a performance which meets the
objective of achieving long-term investment returns, including tax free
dividends. A review of the Company's performance during the financial year, the
position of the Company at the year end and the outlook for the coming year is
contained within the Chairman's Statement above.
The Board assesses the performance of the Manager in meeting the Company's
objective against the primary KPIs highlighted previously.
Performance Incentive
A performance fee is payable to the Manager when the total return on net
proceeds of the ordinary shares exceeds 8 per cent. per annum (simple). To the
extent that the total return exceeds the threshold, a performance fee (plus
VAT) will be paid to the Manager of an amount equal to 10 per cent. of the
excess. The performance fee payable in any one year is capped at 5 per cent. of
net assets.
No performance fee was paid in 2012 and there is no performance fee payable for
the year to 31 December 2013.
Environmental, Human Rights, Employee, Social and Community Issues
The Board recognises the requirement under Section 414 of the Act to detail
information about environmental matters (including the impact of the Company's
business on the environment), employee, human rights, social and community
issues; including information about any policies it has in relation to these
matters and effectiveness of these policies. As the Company has no employees or
policies in these matters this requirement does not apply.
Gender Diversity
The Board of Directors of the Company comprises one female and three male
Directors. The Manager has an equal opportunity policy and currently employs 35
men and 25 women.
Shareholder Choice
The Board wishes to provide shareholders with a number of choices that enable
them to utilise their investment in Baronsmead VCT 3 in ways that best suit
their personal investment and tax planning and in a way that treats all
shareholders equally.
? Fundraising: 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.
? 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 943,000 shares were bought in this way
during the year to 31 December 2013.
? Buy back of shares: From time to time the Company buys its own shares
through the market in accordance with its share price discount policy. Subject
to certain conditions, the Company seeks to maintain a mid share price discount
of approximately 5 per cent. to net asset value.
? 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. Investors bought
approximately 428,000 shares of the Company's existing shares in the year to 31
December 2013.
On behalf of the Board
Anthony Townsend
Chairman
17 February 2014
Summary Investment Portfolio
Investment Classification at 31 December 2013
Sector by value
Business Services 42%
Consumer Markets 13%
Financial Services 3%
Healthcare & Education 16%
Technology, Media & Telecommunications ("TMT") 26%
Total Assets by value
Unquoted - loan note 31%
Unquoted - equity 7%
AIM, listed, ISDX & collective investment vehicle 47%
Listed interest bearing securities 5%
Net current assets principally cash 10%
Time Investments Held by value
Less than 1 year 14%
Between 1 and 3 years 26%
Between 3 and 5 years 14%
Greater than 5 years 46%
Table of Investments and Realisations
Investments in the year
Book
cost
Company Location Sector Activity £'000
Unquoted
investments
New
CableCom II Somerset TMT* Provider of network solutions 1,250
Networking
Holdings
Limited
Create Health London Healthcare Provider of fertility 1,065
Limited & Education services
Carousel Kent Business Provider of bespoke logistics 955
Logistics Services and supply chain solutions
Limited
Key Travel London Business Travel management company, 954
Limited Services focused on the non-profit
sector
Eque2 Limited Manchester TMT* Enterprise resource planning 877
(ERP) solutions provider to
the construction industry
Armstrong Manchester Business Provider of executive search 673
Craven Limited Services and business intelligence
services
Follow on
Impetus London Business Automotive consultancy and 248
Holdings Services outsourced service provider
Limited
Playforce Melksham Business Design and installation of 163
Holdings Services playground equipment
Limited
Crew Clothing London Consumer Branded clothing retailer 109
Holdings Markets
Limited
Valldata Group Melksham Business Payment processing to charity 54
Limited Services sector
Total unquoted investments 6,348?
AIM-traded & ISDX investments
New
Everyman Media London Consumer Boutique independent cinema 391
Group plc Markets chain
MartinCo plc Bournemouth Consumer UK letting agency franchise 343
Markets network
Bioventix plc Farnham, Healthcare Develops sheep monoclonal
Surrey & Education antibodies 227
Daily Internet Stockport TMT* SME Domain registration & 225
plc hosting
Ideagen plc Matlock TMT* Compliance software solutions 225
Pinnacle Stirlingshire TMT* B2B telecoms and IT reseller 169
Technology
Group plc
One Media iP Buckinghamshire TMT* Content acquisition and 56
Group plc distribution
Follow on
Sanderson Coventry TMT* Retail and manufacturing IT 225
Group plc
Plastics London Business Specialist plastic products 189
Capital plc Services buy and build
Tasty plc London Consumer Restaurant chain 125
Markets
TLA Worldwide London Business Baseball sports management 113
plc Services and marketing
EG Solutions Staffordshire TMT* Back office optimisation 78
plc software
Green Worcester Business Small business compliance 50
Compliance plc Services
Paragon London Consumer Visitor attractions 45
Entertainment Markets
Limited
Accumuli plc Salford TMT* Managed IT security 40
Tangent London Business Digital marketing and 40
Communications Services online print services
plc
Total AIM-traded & ISDX 2,541
investments
Total investments in the year 8,889
*Technology, Media and Telecommunications ("TMT").
?In addition, Consumer Investment Partners, an existing portfolio company
established in 2012 to seek investments in the Consumer Markets sector,
invested £0.96 million in Luxury For Less, an online bathroom products
retailing business.
Realisations in the year
31
December
First 2012 Proceeds Overall
Investment valuation ? multiple
Company date £'000 £'000 return
Unquoted realisations
CableCom Networking Full trade
Holdings Limited sale May 07 4,328 5,748 4.8*
Independent Living Full trade
Services Limited sale Sep 05 3,322 3,426 2.5*
Full trade
CSC (World) Limited sale Jan 08 2,410 3,115 2.4*
Full trade
Kafevend Holdings Limited sale Oct 05 2,956 2,430 2.5*
Full trade
MLS Limited sale Jul 06 956 984 2.8*
Loan
Valldata Group Limited repayment Jan 11 450 540 1.5*
Kidsunlimited Group Loan
Limited repayment Jun 01 113 176 4.9*?
Consumer Investment Loan
Partners Limited repayment Apr 12 45 45 1.0
Total unquoted realisations 14,580 16,464
AIM-traded realisations
IDOX plc Market sale Jan 09 1,724 1,752 5.7
Full trade Jun 07 612 874 2.8
FFastFill plc sale
Full market
PROACTIS Holdings plc sale May 06 426 621 1.1*
Full trade
Active Risk Group plc sale May 10 54 126 0.8
Zattikka plc Write off Apr 12 136 - N/A
Total AIM-traded realisations 2,952 3,373
Total realisations in the year 17,532 19,837
? Proceeds at time of realisation including redemption premium and interest.
* Includes interest/dividends received, loan note redemptions and partial
realisations accounted for in prior periods.
? Kidsunlimited Group Limited was realised in April 2008. As part of the
consideration, Baronsmead VCT 3 received £113,000 in loan stock, which was
redeemed in April 2013. The overall multiple return for the investment in
Kidsunlimited was 4.9 times original cost.
Ten Largest Investments
The top ten investments by current value at 31 December 2013 illustrate the
diversity and size of investee companies within the portfolio. This financial
information is taken from publicly available information published at Companies
House, which has been audited by the auditors of the investee companies.
1. NEXUS VEHICLE HOLDINGS LIMITED - Leeds
All ISIS EP LLP managed funds
First investment: February 2008
Total cost: £9,500,000
Total equity held: 56.00%
Baronsmead VCT 3 only
Cost: £2,368,000
Valuation: £4,621,000
Valuation basis: Earnings Multiple
% of equity held: 12.32%
Year ended 30 September 2012 2011
£ million £ million
Sales: 36.5 38.3
EBITA: 3.3 4.3
Net Assets: 1.8 1.7
No. of Employees: 113 90
(Source: Nexus Vehicle Holdings Limited, Report & Financial Statements 30
September 2012).
2. NETCALL PLC - Hertfordshire
All ISIS EP LLP managed funds
First investment: July 2010
Total cost: £4,354,000
Total equity held: 20.00%
Baronsmead VCT 3 only
Cost: £869,000
Valuation: £2,847,000
Valuation basis: Bid Price
% of equity held: 4.01%
Year ended 30 June 2013 2012
£ million £ million
Sales: 16.1 14.6
EBITA: 3.4 3.1
Net Assets: 16.9 15.5
No. of Employees: 141 123
(Source: Netcall plc, Annual Report and Accounts 30 June 2013)
3. CREW CLOTHING HOLDINGS LIMITED - London
All ISIS EP LLP managed funds
First investment: November 2006
Total cost: £5,833,000
Total equity held: 25.51%
Baronsmead VCT 3 only
Cost: £1,453,000
Valuation: £2,336,000
Valuation basis: Earnings Multiple
% of equity held: 6.09%
Year ended 28 October 2012 2011
£ million £ million
Revenue: 48.5 40.7
EBITA: 3.5 3.3
Net Assets: 6.0 5.7
No. of Employees: 363 311
(Source: Crew Clothing Holdings Limited, Report and Financial Statements 28
October 2012)
4. VECTURA GROUP PLC - Wiltshire
All ISIS EP LLP managed funds
First investment: April 2001
Total cost: £2,175,000
Total equity held: 1.28%
Baronsmead VCT 3 only
Cost: £771,000
Valuation: £2,239,000
Valuation basis: Last Traded Price
% of equity held: 0.47%
Year ended 31 March 2013 2012
£ million £ million
Revenue: 30.5 33.0
EBITA: (5.3) (6.4)
Net Assets: 135.1 139.5
No. of Employees: 216 209
(SourceVectura Group Plc, Annual Report and Accounts 2012/2013)
5. IDOX PLC - London
All ISIS EP LLP managed funds
First investment: May 2002
Total cost: £1,641,000
Total equity held: 4.98%
Baronsmead VCT 3 only
Cost: £614,000
Valuation: £2,081,000
Valuation basis: Last Traded Price
% of equity held: 1.83%
Year ended 31 October 2012 2011
£ million £ million
Revenue: 57.9 38.6
EBITA: 12.8 9.5
Net Assets: 38.9 34.4
No. of Employees: 467 363
(Source: IDOX Plc, Annual Report and Accounts 31 October 2012)
6. INSPIRED THINKING GROUP LIMITED - Birmingham
All ISIS EP LLP managed funds
First investment: May 2010
Total cost: £3,200,000
Total equity held: 22.50%
Baronsmead VCT 3 only
Cost: £796,000
Valuation: £2,056,000
Valuation basis: Earnings Multiple
% of equity held: 4.95%
Year ended 31 August 2013 2012
£ million £ million
Revenue: 43.3 32.7
EBITA: 1.6 1.6
Net Assets: 0.8 0.8
No. of Employees: 218 158
(Source: Inspired Thinking Group Holdings Limited, Report and Financial
Statements 31 August 2013)
7. VALLDATA GROUP LIMITED - Melksham
All ISIS EP LLP managed funds
First investment: January 2011
Total cost: £4,921,000
Total equity held: 58.90%
Baronsmead VCT 3 only
Cost: £1,220,000
Valuation: £1,701,000
Valuation basis: Earnings Multiple
% of equity held: 13.88%
Year ended 31 March 2013 2012
£ million £ million
Revenue: 7.5 8.8
EBITA: 1.6 1.2
Net Assets: 9.7 9.5
No. of Employees: 232 272
(Source: Valldata Group Limited, Directors Report and Financial Statements 31
March 2013).
8. TASTY PLC - London
All ISIS EP LLP managed funds
First investment: September 2006
Total cost: £3,223,000
Total equity held: 14.52%
Baronsmead VCT 3 only
Cost: £594,000
Valuation: £1,634,000
Valuation basis: Bid Price
% of equity held: 2.53%
Year ended 31 December 2012 2011
£ million £ million
Revenue: 19.3 14.6
EBITA: 1.6 1.1
Net Assets: 12.3 11.0
No. of Employees: 453 325
(Source: Tasty Plc, Report and Financial Statements 31 December 2012)
9. INDEPENDENT COMMUNITY CARE MANAGEMENT LIMITED - Kettering
All ISIS EP LLP managed funds
First investment: October 2011
Total cost: £6,010,000
Total equity held: 55.00%
Baronsmead VCT 3 only
Cost: £1,346,000
Valuation: £1,583,000
Valuation basis: Earnings Multiple
% of equity held: 10.89%
Year ended 31 March 2013 2012
£ million £ million
Revenue: 8.4 7.5
EBITA: 0.2 0.4
Net Assets: 0.5 0.4
No. of Employees: 390 348
(Source: ICCM Ltd, Directors' Report and Financial Statements)
10. MURGITROYD GROUP PLC - Glasgow
All ISIS EP LLP managed funds
First investment: November 2001
Total cost: £638,000
Total equity held: 5.92%
Baronsmead VCT 3 only
Cost: £319,000
Valuation: £1,502,000
Valuation basis: Bid Price
% of equity held: 2.96%
Year ended 31 May 2013 2012
£ million £ million
Revenue: 36.0 35.7
EBITA: 4.7 4.5
Net Assets: 24.3 21.3
No. of Employees: 240 235
Source: Murgitroyd Group Plc, Directors' Report and Financial Statements 31 May
2013)
Extract from the Report of the Directors
Results and Dividends
The Directors present the thirteenth Annual report and audited financial
statements of the Company for the year ended 31 December 2013.
Ordinary shares £'000
Profit on ordinary shares after taxation 9,108
Final dividend of 4.5p per ordinary share paid on (3,006)
15 April 2013
First interim dividend of 3.0p per ordinary share paid (1,981)
on 20 September 2013
Second interim dividend of 4.5p per ordinary share (2,972)
paid on 20 December 2013
Total dividends paid during the year (7,959)
Issue and Buy-back of Shares
During the period the Company bought back 770,000 ordinary shares with a
nominal value of 10p to be held in treasury representing 1.0 per cent. of the
issued share capital at a cost of £813,175. No shares were sold from treasury
during the period. Shares will not be sold at a discount wider than the
discount prevailing at the time the shares were initially bought back by the
Company.
The Company holds 9,699,214 ordinary shares in treasury, being the maximum
number of ordinary shares held in treasury during the year, representing 12.8
per cent. of the issued share capital as at 17 February 2014.
Management
ISIS EP LLP manages the investments for the Company. The liquid assets within
the portfolio (being cash, gilts and other assets, which are not categorised as
venture capital investments for the purpose of the FCA's rules) have been
managed by FPPE LLP. This is a limited liability partnership, which is
authorised and regulated by the FCA and which has the same controlling members
as the Manager. The Manager has continued to act as the Manager of the Company
and as the investment manager of the Company's illiquid assets (being all
AIM-traded and other venture capital investments).
The Manager also provides or procures the provision of accounting, secretarial,
administrative and custodian services to the Company. The management agreement
may be terminated at any date by either party giving twelve months' notice of
termination. Under the management agreement, the Manager receives a fee of 2.5
per cent. per annum of the net assets of the Company. If the management
agreement is terminated, the Manager is only entitled to the management fees
paid to it and any interest due on unpaid fees.
In addition, the Manager receives an annual secretarial and accounting fee that
was initially fixed at £33,816 in 2006 and is revised annually to reflect the
movement in RPI, plus a variable fee of 0.125 per cent. of the net assets of
the Company which exceed £5 million. The annual fee was initially capped at £
102,212 per annum and is also revised annually to reflect the movement in RPI.
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 31 December 2013 was 3.0 per cent.
During the year the Management Engagement and Remuneration Committee met to
discuss and consider the continuing appointment of the Manager. The Committee
reviewed and considered the agreements between the Company and the Manager and
the Manager's performance and after careful consideration the Committee
recommended to the Board that ISIS EP LLP should continue as Manager of the
Company. It is the Board's opinion that the continuing appointment of ISIS EP
LLP on the terms agreed is in the best interests of shareholders as a whole.
The Board believes that the knowledge and experience accumulated by the Manager
in the period since the launch of the first Baronsmead VCT in 1995 is reflected
in processes which are designed to find, manage and realise good quality growth
businesses.
Co-investment Scheme
The Co-investment Scheme was introduced in November 2004. Members of the
Manager's investment team invest their own capital into a proportion of the ordinary shares of each
and every unquoted investment made by the Baronsmead VCTs. The shares held by the members of the
Co-investment Scheme in any portfolio company can only be sold at the same time as the investment held by
the Baronsmead VCTs is sold. In addition, any prior ranking financial instruments, such as loan stock, held by the Baronsmead VCTs have to be repaid in full together with the agreed priority annual return before any gain accrues
to the ordinary shares. This ensures that the Baronsmead VCTs achieve a good priority return before profits accrue to the Co-investment Scheme.
The Board is keen to ensure that the Manager continues to have one of the best
investment teams in the VCT and private equity market place and considers the
Scheme to be essential in order to attract, retain and incentivise the best
talent. The Scheme is in line with current market practice in the private
equity industry and the Board believes that it aligns the interests of the
Manager with those of the Baronsmead VCTs since executives have to invest their
own capital in every unquoted transaction and cannot decide selectively in
which investments to participate. In addition the Co-investment only delivers a
return after each VCT has realised a priority return built into the structure.
The executives participating in the Co-investment Scheme subscribe jointly for
a proportion (currently 12 per cent.) of the ordinary shares available to the
Baronsmead VCTs in each unquoted investment. The level of participation was
increased from 5 per cent. in 2007 when the Manager's performance fee was
reduced from 20 per cent. to its current level of 10 per cent.
Since the formation of the Scheme in 2004, 52 executives have invested a total
of £1.2 million in 39 companies. At 31 December 2013 14 of these investments
have been realised generating proceeds of £148 million for the Baronsmead VCTs
and £8 million for the Co-investment Scheme. For Baronsmead VCT 3 the average
money multiple on these nine realisations was 2.6 times cost. Had the
co-investment shares been held instead by the Baronsmead VCTs that money
multiple would have been 2.7 times cost. Over the period of eight years (based
upon the current number of shares in issue) this equates to approximately 3.09p
a share.
ISIS Equity Partners - Advisory Fees
During the year to 31 December 2013, ISIS EP LLP received net income of
£174,000 (2012: £96,550) in connection with advisory fees and incurred abort fees of £Nil (2012: £59,382)
with respect to investments attributable to Baronsmead VCT 3 plc.
Directors' fees of £211,000 were received in relation to companies in the
investment portfolio during the year.
VCT Status Adviser
The Company has retained PricewaterhouseCoopers LLP ('PwC') as its VCT Tax
Status Advisers to advise it on compliance with VCT requirements. PwC reviews
new investment opportunities, as appropriate, and reviews regularly the investment
portfolio of the Company. PwC works closely with the Manager but reports directly to the Board.
Environment
The Company seeks to conduct its affairs responsibly and environmental factors
are, where appropriate, taken into consideration with regard to investment decisions.
Global Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to report from the operations of
the Company, nor does it have responsibility for any other emissions producing
sources under Companies Act 2006 (Strategic Report and Directors' Reports)
Regulations 2013, including those within its underlying investment portfolio.
Substantial Interests in Share Capital
At 31 December 2013 and since 31 December 2013 to the date of this report, the
Company was not aware of any beneficial interest exceeding 3 per cent. of
ordinary share capital in circulation.
Going Concern
After making enquires, and bearing in mind the nature of the Company's business
and assets, the Directors consider that the Company has adequate resources to continue in operational
existence for the foreseeable future. In arriving at this conclusion the Directors have considered the
liquidity of the Company and its ability to meet obligations as they fall due
for a period of at least twelve months from the date that these financial
statements were approved. As at 31 December 2013 the Company held cash balances
and investments in interest bearing securities and Money Market Funds with a
combined value of £11,062,000. 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
buy-back programme and dividend policy. The Company has no external loan
finance in place and therefore is not exposed to any gearing covenants.
Statement of Directors' Responsibilities
Statement of Directors' Responsibilities in respect of the Annual Report and
the Financial Statements
The Directors are responsible for preparing the Annual Report and the Financial
Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law they have elected to prepare the financial
statements in accordance with UK Accounting Standards.
The financial statements are required by law to 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 judgments and estimates that are reasonable and prudent;
? state whether applicable UK Accounting Standards ("UK GAAP") have been
followed, subject to any material departures disclosed and explained in the
financial statements; and
? prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that
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 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 Directors' Report (including Business Review), Directors'
Remuneration Report and Corporate Governance Statement that comply 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,
www.baronsmeadvct3.co.uk. Visitors to the website should be aware that
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 of the Company;
? the Report of Directors includes a fair review of the development and
performance of the business and the position of the Company together with a
description of the principal risks and uncertainties that it faces; and
? the report and accounts, taken as a whole, are fair, balanced, and
understandable and provide the necessary information for shareholders to assess
the Company's performance, business model and strategy.
On behalf of the Board
Anthony Townsend
Chairman
17 February 2014
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's
statutory accounts for the years ended 31 December 2013 and 31 December 2012
but is derived from those accounts. Statutory accounts for 2012 have been
delivered to the Registrar of Companies, and those for 2013 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.baronsmeadvct3.co.uk
Income Statement
For the year ended 31 December 2013
2013 2012
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Unrealised gains on 2.3 - 8,624 8,624 - 9,373 9,373
movements in fair value
of investments
Realised (losses)/gains 2.3 - (1,069) (1,069) - 426 426
on disposal of
investments
Income 2.5 3,763 - 3,763 1,187 - 1,187
Investment management fee 2.6 (443) (1,329) (1,772) (409) (1,228) (1,637)
Other expenses 2.6 (438) - (438) (390) - (390)
Profit on ordinary 2,882 6,226 9,108 388 8,571 8,959
activities before
taxation
Taxation on ordinary 2.9 (560) 560 - (25) 25 -
activities
Profit on ordinary 2,322 6,786 9,108 363 8,596 8,959
activities after taxation
Return per ordinary
share
Basic 2.2 3.50p 10.23p 13.73p 0.58p 13.67p 14.25p
All items in the above statement derive from continuing operations.
There are no recognised gains and losses other than those disclosed in the
Income Statement.
The revenue column of the Income Statement includes all income and expenses.
The capital column accounts for the realised and unrealised profit or loss on
investments and the proportion of the management fee charged to capital.
Reconciliation of Movements in Shareholders' Funds
For the year ended 31 December 2013
2013 2012
Notes £'000 £'000
Opening shareholders' funds 74,562 60,095
Profit on ordinary activities after taxation 9,108 8,959
Net proceeds of share issues & buybacks 3.2 (817) 7,401
Other costs charged to capital 3.2 (15) -
Dividends paid 2.4 (7,959) (1,893)
Closing shareholders' funds 4,879 74,562
Balance Sheet
As at 31 December 2013
2013 2012
Notes £'000 £'000
Fixed assets
Investments 2.3 67,727 66,740
Current assets
Debtors 2.7 178 5,261
Cash at bank and on deposit 7,564 3,238
7,742 8,499
Creditors (amounts falling due within one year) 2.8 (590) (677)
Net current assets 7,152 7,822
Net assets 74,879 74,562
Capital and reserves
Called-up share capital 3.1 7,573 7,573
Share premium 3.2 - 22,866
Capital redemption reserve 3.2 - 10,862
Other reserve 3.2 33,718 -
Capital reserve 3.2 19,906 18,928
Revaluation reserve 3.2 12,992 13,649
Revenue reserve 3.2 690 684
Equity shareholders' funds 2.1 74,879 74,562
Net asset value per share
- Basic 2.1 113.40p 111.62p
- Treasury 2.1 112.48p 110.88p
The financial statements were approved by the Board of Directors on 17 February
2014 and were signed on its behalf by:
ANTHONY TOWNSEND (Chairman)
Cash Flow Statement
For the year ended 31 December 2013
2013 2012
£'000 £'000
Operating activities
Investment income received 3,931 1,337
Deposit interest received 18 7
Investment management fees paid (1,744) (1,572)
Other cash payments (410) (378)
Net cash inflow/(outflow) from operating activities 1,795 (606)
Financial investment
Purchases of investments (36,380) (63,220)
Disposals of investments 42,948 65,620
Net cash inflow from financial investment 6,568 2,400
Equity dividends paid (7,959) (1,893)
Net cash inflow/(outflow) before financing 404 (99)
Financing
Net proceeds of share issues & buybacks 3,930 2,654
Other costs charged to capital (8) -
Net cash inflow from financing 3,922 2,654
Increase in cash 4,326 2,555
Reconciliation of net cash flow to movement in net cash
Increase in cash 4,326 2,555
Opening cash position 3,238 683
7,564 3,238
Closing cash at bank and on deposit
Reconciliation of profit on ordinary activities before
taxation to net cash inflow/(outflow) from operating
activities
Profit on ordinary activities before taxation 9,108 8,959
Gains on investments (7,555) (9,799)
Decrease in debtors 197 187
Increase in creditors 45 76
Income reinvested - (29)
Net cash inflow/(outflow) from operating activities 1,795 (606)
Notes to the Accounts
In preparing the 2013 financial statements, Baronsmead VCT 3 has made a number
of changes in structure, layout and wording in order to make the financial statements less complex and
more relevant for shareholders and other users.
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
These financial statements have been prepared under UK Generally Accepted
Accounting Practice ("UK GAAP") and in accordance with the Statement of
Recommended Practice ("SORP") for investment trust companies and venture
capital trusts issued by the Association of Investment Companies ("AIC") in
January 2009 and on the assumption that the Company maintains VCT status.
2. Investments, performance and shareholder returns
2.1 Net asset value per share
Net asset value Net asset
per value
Number of ordinary shares share attributable attributable
2013 2012 2013 2012 2013 2012
number number pence pence £'000 £'000
Ordinary shares (basic) 66,032,705 66,802,705 113.40 111.62 74,879 74,562
Ordinary shares 75,731,919 75,731,919 112.48 110.88 85,184 83,971
(including treasury)
The treasury net asset value per share as at 31 December 2013 included ordinary
shares held in treasury valued at the mid share price of 106.25p at 31 December
2013 (2012: 105.38p).
2.2 Return per share
Weighted average
number of Return per Net profit on ordinary
ordinary shares ordinary share activities after taxation
2013 2012 2013 2012 2013 2012
number number pence pence £'000 £'000
Revenue 66,308,458 62,863,845 3.50 0.58 2,322 363
Capital 66,308,458 62,863,845 10.23 13.67 6,786 8,596
Total 13.73 14.25 9,108 8,959
2.3 Investments
Purchases or sales of investments are recognised at the date of transaction.
Investments are measured at fair value. For AIM-traded, ISDX and listed
securities this is either bid price or the last traded price, depending on the
convention of the exchange on which the investment is traded. In respect of
unquoted investments, these are valued at fair value by the Directors using
methodology which is consistent with the International Private Equity and Venture Capital Valuation
guidelines ("IPEV"). This means investments are valued using an earnings
multiple, which has a discount or premium applied which adjusts for points of
difference to appropriate stock market or comparable transaction multiples.
Alternative methods of valuation will include application of an arm's length
third party valuation, a provision on cost or a net asset value basis.
Gains and losses arising from changes in the fair value of the investments are
included in the Income Statement for the period as a capital item. Transaction costs on acquisition
are included within the initial recognition and the profit or loss on disposal is calculated net of transaction
costs on disposal.
All investments are initially recognised and subsequently measured at fair
value. Changes in fair value are recognised in the Income Statement.
The 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.
2013 2012
£'000 £'000
Level 1
Listed interest bearing securities 3,498 2,490
Investments traded on AIM 25,722 20,833
Investments listed on ISDX 346 -
Investments listed on LSE 2,850 1,808
32,416 25,131
Level 2
Collective investment vehicle (Wood Street Microcap Investment 7,012 4,525
Fund)
Level 3
Unquoted investments 28,299 7,084
67,727 66,740
Level 1 Level 2 Level 3
Listed
interest Collective
bearing Traded Traded Listed investment
securities on AIM on on LSE vehicle Unquoted Total
ISDX
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Opening book cost 2,490 16,867 - 1,729 3,525 28,480 53,091
Opening unrealised - 3,966 - 79 1,000 8,604 13,649
appreciation
Opening valuation 2,490 20,833 - 1,808 4,525 37,084 66,740
Movements in the year:
Purchases at cost 27,491 2,314 227 - - 6,348 36,380
Sales - proceeds (26,483) (3,373) - - - (13,092) (42,948)
- realised - 419 - - - (1,069)
gains/(losses) on (1,488)
sales
Unrealised gains - 1,240 - - - 8,041 9,281
realised
during the year
Increase/(decrease) in unrealised
appreciation - 4,289 119 1,042 2,487 (8,594) (657)
Closing valuation 3,498 25,722 346 2,850 7,012 28,299 67,727
Closing book cost 3,498 17,467 227 1,729 3,525 28,289 54,735
Closing unrealised - 8,255 119 1,121 3,487 10 12,992
appreciation
Closing valuation 3,498 25,722 346 2,850 7,012 28,299 67,727
Equity shares - 25,722 346 2,850 7,012 5,383 41,313
Loan notes - - - - - 22,916 22,916
Fixed income 3,498 - - - - - 3,498
securities
Closing valuation 3,498 25,722 346 2,850 7,012 28,299 67,727
The gains and losses included in the above table have all been recognised in
the Income Statement above.
For Level 3 unquoted investments, the effect on fair value of changing one or
more assumptions to reasonably possible alternatives has been considered. The
portfolio has been reviewed and both downside and upside reasonable possible
alternatives have been identified and applied to the valuation of each of the
investments. The inputs flexed in determining the reasonably possible
alternative assumptions include the earnings stream and marketability discount.
Applying the downside alternatives the value of the unquoted investments would
be £2.8 million or 9.3 per cent. lower. Using the upside alternatives the value would be increased by £2.6
million or 10.1 per cent.
2.4 Dividends
2013 2012
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Amounts recognised as distributions
to equity holders in the year:
For the year ended 31 December 2013
- First interim dividend of 3.0p 991 990 1,981 - - -
per ordinary share paid on
20 September 2013
- Second interim dividend of 4.5p 991 1,981 2,972
per ordinary share paid on
20 December 2013 - - -
For the year ended 31 December 2012
- Interim dividend of 3.0p per - - - - 1,893 1,893
ordinary share paid on 21 September
2012
- Final dividend of 4.5p per 334 2,672 3,006
ordinary share paid on 15 April
2013 - - -
2,316 5,643 7,959 - 1,893 1,893
2.5 Income
Interest income on loan notes and dividends on preference shares are accrued on
a daily basis. Provision is made against this income where recovery is doubtful.
Where the terms of unquoted loan notes only require interest or a redemption
premium to be paid on redemption, the interest and redemption premium is
recognised as income once redemption is reasonably certain. Until such date interest is accrued daily and included within the valuation of the investment.
Income from fixed interest securities and deposit interest is included on an
effective interest rate basis.
Dividends on quoted shares are recognised as income when the related
investments are marked ex-dividend and where no dividend date is quoted, when
the Company's right to receive payment is established.
2013 2012
Quoted Unquoted Quoted Unquoted
securities securities securities securities
Total Total
£'000 £'000 £'000 £'000 £'000 £'000
Income from
investments?
UK franked 472 - 472 285 - 285
UK unfranked 8 2,351 2,359 13 807 820
UK unfranked - - - - - 29 29
reinvested
Redemption - 913 913 - 45 45
premium
480 3,264 3,744 298 881 1,179
Other income?
Deposit Interest 19 8
Total income 3,763 1,187
Total income
comprises:
Dividends 472 285
Interest 3,291 902
3,763 1,187
? All investments have been designated at fair value through profit or loss on
initial recognition, therefore all investment income arises on investments at
fair value through profit or loss.
? Other income on financial assets not designated fair value through profit or
loss.
2.6. Investment management fee and other expenses
All expenses are recorded on an accruals basis.
2013 2012
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fee 443 1,329 1,772 409 1,228 1,637
Performance fee - - - - - -
443 1,329 1,772 409 1,228 1,637
Management fees are allocated 25 per cent. income: 75 per cent. capital derived
in accordance with the Board's expected split between long term income and
capital returns. Performance fees are allocated 100 per cent. capital.
The management agreement may be terminated by either party giving twelve months
notice of termination. The Manager, ISIS EP LLP, receives a fee of 2.5 per cent. per annum of the net
assets of the Company, calculated and payable on a quarterly basis.
The Manager is entitled to a performance fee when the total return on net
proceeds of the ordinary shares exceeds 8 per cent. per annum (on a simple basis). The Manager is entitled to
10 per cent. of the excess. The amount of any performance fee which is paid in
respect of a calculation period shall be capped at 5 per cent. of the
shareholders' funds at the end of the calculation period. No performance fee is
payable for the year ended 31 December 2013 (2012: £nil).
Other expenses
2013 2012
£'000 £'000
Directors' fees 82 80
Secretarial and accounting fees paid to the Manager 130 121
Remuneration of the auditors and their associates:
- audit 22 21
- other services supplied pursuant to legislation (interim review) 5 5
- other services supplied relating to taxation 6 7
- other services supplied relating to financial statements' 5 -
reorganisation
Other 188 156
438 390
Information on directors' remuneration is given in the directors' remuneration
table in the full Annual report and accounts.
Charges for other services provided by the auditors in the year ended 31
December 2013 were in relation to the interim reviews, tax compliance work
(including iXBRL) and financial statements' reorganisation. 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
2013 2012
£'000 £'000
Prepayments and accrued income 178 375
Amounts due from fundraising - 4,886
178 5,261
2.8 Creditors (amounts falling due within one year)
2013 2012
£'000 £'000
Management, performance, secretarial and accounting fees due to the 471 474
Manager
Share premium and capital redemption reserve cancellation costs 7 -
Fundraising costs - 139
Other creditors 112 64
590 677
2.9 Tax
UK corporation tax payable is provided on taxable profits at the current rate.
Provision is made for deferred taxation on all timing differences calculated at
the current rate of tax relevant to the benefit or liability.
The tax charge for the year is lower than the standard rate of corporation tax
in the UK for a company. The
differences are explained below:
2013 2012
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Profit on ordinary 2,882 6,226 9,108
activities before
taxation 388 8,571 8,959
Corporation tax at 23.25 670 1,448 2,118 95 2,100 2,195
per cent.
2012: 24.5 per cent.)
Effect of:
Non-taxable gains - (1,757) (1,757) - (2,401) (2,401)
Non-taxable dividend (110) - (110) (70) - (70)
income
Losses carried forward - (251) (251) - 276 276
Tax charge/(credit) for the 560 (560) - 25 (25) -
year
At 31 December 2013 the Company had surplus management expenses of £1,964,000
(2012: £3,045,000)
which have not been recognised as a deferred tax asset. This is because the
Company is not expected to generate taxable income in a future period in excess
of the deductible expenses of that future period and, accordingly, the Company
is unlikely to be able to reduce future tax liabilities through the use of
existing surplus expenses. Due to the Company's status as a VCT, and the
intention to continue meeting the conditions required to obtain approval in the
foreseeable future, the Company has not provided deferred tax on any capital
gains and losses arising on the revaluation or disposal of investments.
3. Other Required Disclosures
3.1 Called-up share capital
Allotted, called-up and fully paid:
Ordinary shares
£'000
75,731,919 ordinary shares of 10p each listed at 31 December 2012 7,573
75,731,919 ordinary shares of 10p each listed at 31 December 2013 7,573
8,929,214 ordinary shares of 10p each held in treasury at 31 December (893)
2012
770,000 ordinary shares of 10p each repurchased during the year and held (77)
in treasury
9,699,214 ordinary shares of 10p each held in treasury at 31 December (970)
2013
66,032,705 ordinary shares of 10p each in circulation* at 31 December 6,603
2013
* Carrying one vote each.
During the year the Company bought into treasury 770,000 ordinary shares
representing 1.0 per cent. of the ordinary shares in issue at the beginning of the financial year.
There were no changes in share capital between the year end and when the financial statements were approved.
Treasury shares
When the Company reacquires its own shares, they are held as treasury shares
and not cancelled.
Shareholders have authorised the Board to re-issue treasury shares at a
discount to the prevailing NAV subject to the following conditions:
- It is in the best interests of the Company;
- Demand for the Company's shares exceeds the shares available in the market;
- A full prospectus must be produced if funds raised are greater than ?5m; and
- HMRC will not consider these 'new shares' for the purposes of the purchasers'
entitlement to initial income tax relief.
3.2 Reserves
Gains and losses on realisation of investments of a capital nature are dealt
with in the capital reserve. Purchases of the Company's own shares to be either held in treasury or
cancelled are also funded from this reserve. 75 per cent. of management fees are allocated to the capital reserve
in accordance with the Board's expected split between long term income and capital returns.
Distributable reserves Non-distributable reserves
Capital
redemption
Capital Revenue Share Other Revaluation
reserve reserve Total premium reserve reserve reserve* Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 January 18,928 684 19,612 22,866 10,862 - 13,649 47,377
2013
Cancellation - - - (22,866) (10,862) 33,728 - -
of share
premium and
capital
redemption
reserve
Share - - - - - (10) - (10)
premium and
capital
redemption
reserve
cancellation
costs
Purchase of (813) - (813) - - - - -
shares for
treasury
Expenses of - - -
share issue
and buybacks (4) - (4) - -
Other costs - -
charged to
capital (5) - (5) - - -
Reallocation - -
of prior
year
unrealised
gains 9,281 - 9,281 - (9,281) (9,281)
Realised - -
loss on
disposal of
investments# (1,069) - (1,069) - - -
Net increase - -
in value of
investments# - - - - 8,624 8,624
Management - -
fee
capitalised# (1,329) - (1,329) - - -
Taxation - -
relief from
capital
expenses# 560 - 560 - - -
Revenue - -
return on
ordinary
activities
after
taxation# - 2,322 2,322 - - -
Dividends
paid in the
year
(5,643) (2,316) (7,959) - - - - -
At 31
December
2013
19,906 690 20,596 - - 33,718 12,992 46,710
# The total of these items is £9,108,000, which agrees to the total profit on
ordinary activities.
* Changes in fair value of investments are dealt with in this reserve.
Share premium is recognised net of issue costs.
The Company does not have any externally imposed capital requirements.
On 18 December 2013 the court granted orders allowing the Company to cancel its
share premium account and capital redemption reserve. The amounts of £22,866,000 (share premium) and £10,862,000 (capital redemption reserve) will become distributable during 2014 once all creditors at the date of cancellation
have been discharged.
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 Strategic Report.
Investments in unquoted stocks, AIM & ISDX quoted companies involve a higher
degree of risk than investments in the main market. The Company aims to reduce
this risk by diversifying the portfolio across business sectors and asset
classes.
Management performs continuing analysis on the fair value of investments and
the Company's overall market positions are monitored by the Board on a
quarterly basis.
2013 2012
5% increase 5% decrease 5% increase 5% decrease
in share in share in share in share
price price price price
effect on effect on effect on effect on
% of total net assets net assets % of total net assets net assets
investment and profit and profit investment and profit and profit
£'000 £'000 £'000 £'000
LSE, AIM, ISDX & 53 1,797 (1,797) 41 1,358 (1,358)
CIV
Unquoted 42 1,415 (1,415) 56 1,854 (1,854)
Valuation methodology includes the application of earnings multiples derived
from either listed companies with similar characteristics or recent comparable
transactions. Therefore the value of the unquoted element of the portfolio may
also indirectly be affected by price movements on the listed exchanges.
Interest rate risk
The Company has the following investments in fixed and floating rate financial
assets:
2013 2012
Weighted Weighted
Weighted average Weighted average
average time for average time for
Total interest which rate Total interest which rate
investment rate is fixed investment rate is fixed
£'000 % days £'000 % days
Fixed rate loan note 22,916 7.89 # 25,226 9.38 #
securities
Fixed interest 3,498 0.26 48 2,000 0.12 21
instruments
Floating rate instrument - - - 490 - -
("OEIC")
Cash at bank & on deposit 7,564 - - 3,238 - -
33,978 30,954
# Due to the complexity of the instruments and uncertainty surrounding timing
of realisation the weighted average time for which the rate is fixed has not
been calculated.
Credit risk
Credit risk refers to the risk that counterparty will default on its obligation
resulting to a financial loss to the Company. The Investment Manager monitors credit risk on an ongoing basis.
At the reporting date, the Company's financial assets exposed to credit risk
amounted to the following:
2013 2012
£'000 £'000
Investments in fixed rate instruments 3,498 2,000
Investments in floating rate instruments - 490
Cash at bank & on deposit 7,564 3,238
Interest, dividends and other receivables 178 5,261
11,240 10,989
Credit risk arising on fixed interest instruments is mitigated by investing in
UK Government Stock.
Credit risk on unquoted loan stock held within unlisted investments is
considered to be part of market risk as disclosed earlier in the note.
Credit risk arising on transactions with brokers relates to transactions
awaiting settlement. Risk relating to unsettled transactions is considered to be small due to the short settlement
period involved and the high credit quality of the brokers used. The Board
monitors the quality of service provided by the brokers used to further
mitigate this risk.
All the assets of the Company which are traded on a recognised exchange are
held by JP Morgan Chase ("JPM"), the Company's custodian. The Board monitors
the Company's risk by reviewing the custodian's internal controls reports as
described in the Corporate Governance section of this report.
The cash held by the Company is held by JPM and Lloyds. The Board monitors the
Company's risk by reviewing regularly the internal control reports of these
banks. Should the credit quality or the financial position of either bank
deteriorate significantly the Investment Manager will seek to move the cash
holdings to another bank.
There were no significant concentrations of credit risk to counterparties at 31
December 2013 or 31 December 2012. No individual investment exceeded 6.2 per
cent. of the net assets attributable to the Company's shareholders at 31
December 2013 (2012: 6.9 per cent.).
Liquidity risk
The Company's financial instruments include investments in unquoted companies
which are not traded in an organised public market, as well as AIM and ISDX traded equity investments,
all of which generally may be illiquid. As a result, the Company may not be able to liquidate quickly some
of its investments in these instruments at an amount close to their fair value in order to meet its
liquidity requirements, or to respond to specific events such as deterioration in the creditworthiness of any particular
issuer.
The Company's liquidity risk is managed on an ongoing basis by the Investment
Manager in accordance with policies and procedures in place as described in the Extract from the
Report of the Directors above. The Company's overall liquidity risks are monitored on a quarterly basis by the
Board. The Company maintains sufficient investments in cash and readily realisable
securities to pay accounts payable and accrued expenses. At 31 December 2013
these investments were valued at £11,062,000 (2012: £5,728,000).
3.4 Related parties
Related party transactions include Management, Secretarial, Accounting and
Performance fees payable to the Manager, ISIS EP LLP, as disclosed in notes 2.6
and 2.8, and fees paid to the Directors as disclosed in note 2.6. In addition,
the Manager operates a Co-investment Scheme, detailed in the Extract from the
Report of the Directors, whereby employees of the Manager are entitled to
participate in all unquoted investments alongside the Company.
An offer for subscription to raise gross proceeds of up to £10m was launched on
22 January 2014. The Fundraising Offer costs are capped at 3 per cent. of the gross proceeds of the
Offer and the Manager agreed to underwrite any costs and expenses in excess of
this amount. If there are surplus funds the Manager expects most or all of the
money received in respect of the underwriting of the costs of the Offer to be
fully utilised in the payment of future trail commission for which it is
responsible.
3.5 Post balance sheet events
A new investment of £952,000 was made in Kingsbridge Risk Solutions Ltd on 10
January 2013.
An offer for subscription to raise gross proceeds of up to £10 million was
launched on 22 January 2014. Based on subscriptions to date, it is expected
that the Company's offer will be fully subscribed during February 2014.
National Storage Mechanism
A copy of the Annual Report and Financial Statements will be submitted shortly
to the National Storage Mechanism ("NSM") and will be available for inspection
at the NSM, which is situated at: http://www.morningstar.co.uk/uk/NSM
Annual General Meeting
The Company's Annual General Meeting will be held on 14 April 2014 at 10:30 am
at Plaisterers' Hall, One London Wall, London, EC2Y 5JU.
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on this announcement (or any other website) is
incorporated into, or forms part of, this announcement.Baronsmead VCT 3 plc : - Annual Financial Report
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