REG - Baronsmead Second VT - Annual Financial Report

Baronsmead Second Venture TrustAnnouncement

24/12/2024 07:00

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RNS Number : 2013R  Baronsmead Second Venture Trust PLC  24 December 2024

Baronsmead Second Venture Trust plc

 

Annual Report and Audited Financial Statements

for the year ended 30 September 2024

 

The Directors of Baronsmead Second Venture Trust plc are pleased to announce
the Annual Financial Report for the year ended 30 September 2024. The Annual
Report and Financial Statements can be obtained from the following website:
www.baronsmeadvcts.co.uk (http://www.baronsmeadvcts.co.uk)

 

Financial Highlights

·    Net Asset Value ("NAV") per share increased 6.3 per cent to 59.2p,
before the deduction of dividends, for the financial year ended 30 September
2024.

·     NAV total return of 337.7p to shareholders for every 100.0p
invested at launch (January 2001).

·   Annual tax free dividend yield of 7.2 per cent based on 4.0p dividends
paid (including proposed final dividend of 2.25p) and opening NAV of 55.6p.

·     £13.4million of investments made into seven new and twelve
follow-on opportunities during the year.

 

 

Investment policy

Baronsmead Second Venture Trust plc's ("the Company") investment policy is to
invest primarily in a diverse portfolio of UK growth businesses, whether
unquoted or traded on AIM, which are substantially based in the UK, although
many of these investees may have some trade overseas.

 

Investments are made selectively across a range of sectors in companies that
have the potential to grow and enhance their value and which will diversify
the portfolio.

 

The Company will make investments in accordance with the prevailing VCT
legislation which places restrictions on the type and age of investee
companies as well as the maximum amount of investment that such investee
companies may receive.

 

Investment securities

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. No single investment may represent more than 15 per cent (by VCT
value) of the Company's total investments.

 

Liquidity

Pending investment in VCT qualifying investments, the Company's cash and
liquid funds are held in permitted non-qualifying investments.

 

Investment style

Investments are selected in the expectation that the application of private
equity disciplines, including active management of the investments, will
enhance value and enable profits to be realised on the sale of investments.

 

Co‑investment

The Company typically invests alongside Baronsmead Venture Trust plc in
unquoted and quoted companies sourced by the Manager. Following the Manager's
acquisition of the Mobeus VCTs in September 2022, the Company now also
co-invests alongside the Mobeus VCTs in new unquoted VCT qualifying
investments. All new qualifying AIM dealflow will continue to be exclusively
allocated between the Company and Baronsmead Venture Trust plc.

 

As detailed in the Management retention section of the Strategic Report in the
full Annual Report and Accounts  the Manager's staff and portfolio
consultants are entitled to invest in unquoted investments alongside the
Company. This arrangement 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

Should it be required, 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 of Association.

 

Investment objective

The Company is a tax efficient listed company which aims to achieve long-term
positive investment returns for private investors, including tax-free
dividends.

 

Dividend policy

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.

 

 

Key elements of the business model

 

Access to an attractive, diverse portfolio

The Company gives shareholders access to a diverse portfolio of growth
businesses.

 

The Company will make investments in growth businesses, whether unquoted or
traded on AIM, which are substantially based in the UK in accordance with the
prevailing VCT legislation. Investments are made selectively across a range of
sectors.

 

The Manager's approach to investing

The Manager endeavours to select the best opportunities and applies a
distinctive selection criteria based on

·      Primarily investing in parts of the economy which are
experiencing long term structural growth

·      Businesses that demonstrate, or have the potential for, market
leadership in their niche

·      Management teams that can develop and deliver profitable and
sustainable growth

·   Companies with the potential to become an attractive asset appealing
to a range of buyers at the appropriate time to sell

 

In order to ensure a strong pipeline of opportunities, the Manager invests in
building deep sector knowledge and networks and undertakes significant
proactive marketing to interesting target companies in preferred sectors. This
approach generates a network of potentially suitable businesses with which the
Manager maintains a relationship ahead of possible investment opportunities.

 

The Manager as an influential shareholder

The Manager is an engaged and supportive shareholder (on behalf of the
Company) in both unquoted and significant quoted investments.

 

For unquoted investments, representatives of the Manager often join the
investee board.

 

The role of the Manager with investees is to ensure that strategy is clear,
the business plan can be implemented and that the management resources are in
place to deliver profitable growth. The intention is to build on the business
model and grow the company into an attractive target able to be either sold or
potentially floated in the medium term.

 

 

STRATEGIC REPORT

 

 

CHAIR'S STATEMENT

 

The economic environment over the 12 months to 30 September 2024 was mixed.
The persistently high inflation and rising interest rates that preceded the
start of the period subsided, with inflation falling to the lowest level in
three years and there was an initial cut in interest rates, with expectations
of more to come. Against this backdrop, the Company's NAV per share increased
3.53p per share (6.3 per cent) before dividend payments for the year ended 30
September 2024.

 

UK consumer confidence is also at its highest level in three years. However
this has not yet translated into consumption, which remains subdued, as
evidenced by the recent household saving data. The Company aims to achieve
long-term positive investment returns for its shareholders from a diverse
portfolio of investments in UK growth companies. Despite the difficult
conditions leading to a drop in the value of the unquoted portfolio over the
period, the Board continues to believe that, in aggregate, the fundamentals of
the large majority of portfolio companies remain robust. The Company continues
to be in a position to support those investee companies where the Manager
believes there is a strong prospect of providing good investment returns for
shareholders over the medium to longer term.

 

Results

                                                                              Pence per ordinary share
 NAV as at 1 October 2023 (after final dividend)                              55.63
 Valuation increase (6.3 per cent)                                            3.53
 NAV as at 30 September 2024 before dividends                                 59.16
 Less:

 Interim dividend paid on 9 September 2024                                    (1.75)
 Proposed final dividend of 2.25p payable, after shareholder approval, on 17  (2.25)
 March 2025
 Illustrative NAV as at 30 September 2024 after proposed dividend             55.16

 

Portfolio Review

At 30 September 2024, the Company's investment portfolio was valued at £140.2
million and comprised 83 direct investments, of which 41 are in unquoted
companies and 42 are in quoted companies. The Company's investments in three
WS Gresham House Equity Funds were valued at £62.5 million at 30 September.
These investments provide investment exposure to an additional 77 AIM-traded
and fully listed companies, spreading investment risk across a highly
diversified portfolio of 160 companies.

 

The performance of the Company's portfolio of AIM-listed and other listed
investments was 16.2% during the year. This compared favourably to the FTSE
AIM All Share Index which was 2.0 per cent over the same period. Significant
contributors to this performance were Cerillion, up 47.7 per cent during the
year; and Property Franchise Group, up 54.5 per cent during the year.

 

The Company's unquoted investments however were down 9.0 per cent during the
year. This is clearly very disappointing and stems from continued difficult
trading conditions and lower valuations where the valuations are based on the
valuation of comparable listed companies and affected by higher discount
rates. The largest detractors from performance were eConsult in the healthcare
sector and RevLifter in the technology sector. These are covered in more
detail in the Manager's Review in the full Annual Report and Accounts.

 

Investments and Divestments

The Board is once again pleased to report that the Company continues to see
attractive opportunities and make new investments. The Company invested a
total of £13.4 million in 19 companies over the year. Further details of the
new investments made are included in the Manager's review in the full Annual
Report and Accounts. As we have said to shareholders previously, the
requirement since 2015 to make investments in earlier stage companies is
likely to result in greater volatility of returns over time. However, the more
mature, established portfolio of existing investments should assist in
sustaining returns and dividends for shareholders, as the newer holdings
develop and grow.

 

The priority for portfolio companies is to operate in a difficult
macroeconomic environment with proactivity and resilience. The Company has the
resources to support new and existing portfolio companies and the Manager is
focusing on the key challenges and opportunities of each holding.

 

There was only one full realisation in the unquoted portfolio during the year
with proceeds of £0.1 million received from the realisation of
FundingXchange, for a gross multiple of 0.1x cost. However, in addition to
this, deferred earn-out consideration of £0.1 million from the sale of Evotix
for a gross money multiple of 0.8x cost. In the listed portfolio, the Manager
has also continued its approach of profitable partial realisations of
Cerillion during the year, resulting in the receipt of proceeds of £8.2
million at an aggregate of 21.1x original invested cost in this AIM-listed
company. Following the takeovers of Gresham House and Gama Aviation, the
Company received £0.5 million for a gross money multiple of 3.9x cost and
£0.6 million for a gross money multiple of 0.6x cost respectively.

 

Dividends

The Board is pleased to declare a final dividend of 2.25p per share for the
year to 30 September 2024, payable on 17 March 2025. This is in addition to
the 1.75p interim dividend paid in September and means that the total
dividends for the year are 4.00p. This is a 7.2 per cent yield based on the
opening NAV of 55.6p and meets the target policy of 7 per cent of the NAV at
the start of the year.

 

VCT Regulations - Retirement Date of the UK Government's Venture Capital
Schemes

During the summer we were pleased to see the European Commission approve the
extension of the VCT scheme until 5 April 2035. This was formalised by UK
legislation on 3 September 2024. The regulations bring into effect the
extension of the Enterprise Investment Scheme (EIS) and the Venture Capital
Trust (VCT) Scheme sunset clause to 2035.

 

Autumn Budget 2024

AIM stocks suffered a material sell off in the run up to the October 2024 UK
budget on fears that IHT tax relief on AIM shares might be removed. In the
event the relief was reduced but not removed entirely resulting in a relief
rally in certain popular AIM stocks. Overall the preservation of the relief
albeit at reduced rates signals a recognition by the new government that
support for the AIM market is

important as a component of its overall growth strategy. We look forward to
more indications of government support for the UK equity market going forward.

 

Consumer Duty

The FCA's Consumer Duty came into force on 31 July 2023 and requires in-scope
firms to act to deliver good outcomes for retail customers across the
distribution chain in respect of four main areas: (i) products and services,
(ii) price and value, (iii) consumer understanding, and (iv) consumer support.
The Consumer Duty applies to the regulated and ancillary activities of all FCA
authorised firms under the Financial Services and Markets Act 2000, the
Payment Services Regulations 2017 and the Electronic Money Regulations 2011.
VCTs are not FCA authorised firms and, accordingly, the Company does not fall
within scope of the Consumer Duty. However, the Consumer Duty does apply to
the Manager, being an FCA authorised firm, and the Board is cognisant of the
Manager's obligations to comply with the Consumer Duty. Notwithstanding that
the Baronsmead VCTs are outside of direct scope of the Consumer Duty, the
Investment Manager continue to apply the principles of the Consumer Duty to
the VCTs given the retail nature of the target market. The Board receives
regular updates from the Manager on the delivery of its obligations under the
Consumer Duty.

 

Succession planning

During the year, the Board began the process of implementing its succession
plan, with Adriana Stirling joining the Board on 1 December 2024. Adriana
qualified as a chartered accountant with PricewaterhouseCooper LLP ("PwC") and
developed extensive organisational and financial crime technical expertise
over her 17 years at PwC, leading client engagements across financial and non-
financial service industries, spanning the public and private sectors. In
2014, she became the Managing Director of a private family office. She has
overall responsibility for the investment and operational aspects of the
office, including managing significant shareholder positions in several
unquoted companies. We are very much looking forward to working with her.

 

Our current Audit & Risk Committee Chair, Malcolm Groat, will be retiring
with effect from 31 December 2024. Malcolm has served as a director of
Baronsmead Second Venture Trust plc since 2016. I would like to thank Malcolm
for his dedication and hard work during this time and wish him all the best in
his future endeavours. Malcolm was also the Senior Independent Director and,
following Malcolm's retirement, Graham McDonald will assume this role.

 

Fundraising

On 1 October 2024 the Company announced its intention to fundraise new funds
in the 2024/25 tax year. It is the Board's current intention to launch its
offer for subscription to raise £15 million (before costs) with an additional
£10 million over allotment facility during January 2025 in a joint offer for
subscription alongside our sister VCT, Baronsmead Venture Trust plc. The full
terms and conditions as they pertain to these offers will be published in the
prospectus and we will ensure shareholders are notified accordingly.

 

Annual General Meeting ("AGM")

The Company intends to hold the next AGM on 12 March 2025. Shareholders are
invited to attend a presentation by the Manager at 11am followed by a Q&A
session. This will be followed by some light refreshments at 12.30pm. The
formal business of the AGM will start at 1.30pm.

 

The event will give shareholders more opportunity to engage with the Board and
the Manager and I look forward to meeting as many shareholders as possible.
Please see the inside cover for more details and how to register to attend.
Registration details will also be included in the Notice of AGM and on the
Baronsmead Second Venture Trust website. The event will be held in person,
with a recording made available shortly afterwards for those unable to attend
in person.

 

Outlook

With UK CPI now tracking the target inflation level and UK investors having
priced in their expectations of two further interest rate cuts, we hope that
the green shoots of economic improvement in the second half of the year will
continue.

 

The portfolio remains highly diversified and the Board continues to believe it
is a good time to be investing in earlier stage, innovative and high growth
potential businesses. The Manager is actively seeking to complete new
investments, believing that this is a propitious time in the economic cycle
ahead of the typical upswing that follows the uncertain times of the past few
years. We remain confident that the Manager is suitably resourced and
positioned to provide the necessary levels of support to the portfolio
companies and remains focussed on retaining, recovering and helping to grow
value in existing and future investee companies.

 

Sarah Fromson

Chair

23 December 2024

 

 

MANAGER'S REVIEW

2024 has been a very unusual year with significant macroeconomic and
geopolitical factors having a significant influence over markets. The UK
equity market delivered modest growth during the year with larger cap
companies outperforming smaller cap companies, particularly those on AIM due
to ongoing negative fund flow dynamics and depressed risk appetite amongst
domestic investors. An increasing weight of money chasing large cap US stocks,
particularly in the technology sector, supported by index funds and passive
flows has further exacerbated the relative underperformance of the UK. Such
levels of global equity market concentration into one geography (the US) and
certain sectors or companies (large cap technology) have only been seen
infrequently throughout history and have typically reversed aggressively in
due course. A period of uncertainty following the snap UK general election and
the new Labour government's first budget, the longest such period for almost
100 years, contributed to volatile sentiment and produced a further headwind
for UK smaller companies reduced, both listed share prices and funding
availability for unquoted growth companies. In particular the shares of many
AIM-listed companies were depressed by the uncertainty running up to the
budget due to concerns over the future of tax reliefs although the outcome was
ultimately less bad than feared by many commentators. There remains an ongoing
disparity between the valuations of many UK smaller companies and equivalent
valuations for similar companies in private markets. This has supported the
ongoing elevated level of takeover activity across the UK market as private
equity investors and strategic corporates seek to exploit this discount to buy
businesses. We expect this discount to close as more investors return seeking
to capture some of this increasingly extreme value opportunity.

 

During the year our AIM portfolio and our WS Gresham House Equity Fund
investments significantly outperformed our unquoted portfolio. This largely
reflects the relative maturity of the underlying portfolio companies with our
quoted holdings typically being larger, profitable, cash generative businesses
that have already established themselves and delivering growth at a sensible
moderate pace. In contrast the nature of the relatively earlier stage unquoted
portfolio is such that more of these businesses are immature and more exposed
to elongating sales cycles that are typical during periods of greater economic
uncertainty. Also typically a certain number of earlier stage venture
investments will fail and those that do tend to fail earlier than the time it
takes for the successful businesses to demonstrate meaningful and sustained
traction. As a result we expect to see value uplifts come through from the
unquote portfolio in future years as some of the businesses mature.

 

 

PORTFOLIO REVIEW

 

Overview

The net assets of £227 million were invested as follows:

 Asset class                       NAV (£mn)   % of NAV*  Number of investees  % return in the year**
 Unquoted                          53          23         41                   (9)
 AIM‑traded companies              87          38         42                   16
 WS Gresham House Equity Funds***  62          28         77                   18
 Liquid assets#                    25          11         N/A                  3
 Totals                            227         100        160                  6

* By value as at 30 September 2024.

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

*** Excludes investee companies with holdings by more than one fund.

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

 

The timeline and table in the Annual Report and Accounts show the breakdown of
new investments and realisations over the course of the year and below is a
commentary on some of the key highlights in both the unquoted and quoted
portfolios.

 

 

Investment activity - unquoted and quoted

 

The Company's investment strategy is primarily focused on companies operating
in parts of the economy that we believe are benefiting from long-term
structural growth trends and in sectors where we have deep expertise and
network. The amount of capital invested in each business is matched to the
scale, maturity and underlying risk profile of the company seeking investment.

 

During the year, £13.4 million was invested into 19 companies including 7 new
additions to the portfolio and 12 follow-on investments.

 

Five new unquoted investments were completed during the year.

Below are descriptions of the new investments made;

 

·      Ozone API is a software developer providing banks and financial
institutions with low-cost, compliant APIs

·      CitySwift is a software business that works with bus operators to
analyse data from their networks

·      Azarc.io specialises in business process automation, notably
automating custom declaration forms

·   SciLeads is a data-intelligence platform that enables companies
operating within Life Science verticals to identify, track and convert
potential customers

·   OnSecurity Technology is a B2B cybersecurity services business which
has built a technology platform to automate the scoping, scheduling, and
reporting of human-based penetration tests

 

Two new AIM quoted investments were made during the year:

 

·     IntelliAM is a provider of a machine learning platform enabling
manufacturing organisations to leverage their data and maximise the value and
efficiency of their assets

·    Earnz is a consolidator in the blue collar energy services sector
created by an experienced Executive Chairman which the Manager has
successfully backed in previous ventures

 

The Company made additional investments totalling £5.1 million into twelve
existing portfolio companies, 3 quoted and 9 unquoted, across the year. This
is consistent with the investment strategy of continuing to back our high
potential assets with further capital to support future growth. We anticipate
the level of follow-on investment will continue to grow as the earlier stage
portfolio continues to mature.

 

Investment diversification at 30 September 2024 by value

 

Sector*

 Technology                  64%

 Healthcare & education      20%
 Business services           9%
 Consumer markets            7%

 

Total assets

 AIM                            38%
 WS Gresham House Equity Funds  28%
 Unquoted                       23%
 Cash liquidity funds           11%

Length of time investments held*

 Pre-VCT rule change**                49%
 Between 5 years and VCT rule change  12%
 Between 3 and 5 years                22%
 Between 1 and 3 years                11%
 Less than 1 year                     6%

* Direct investments only, not held by the WS Gresham House UK Equity Funds.

** Investments made prior to the VCT rule change that took effect from 18
November 2015.

 

 

Quoted Portfolio (AIM-traded investments)

 

Performance

The quoted portfolio delivered positive absolute performance of 16.2 per cent
during the year, despite the ongoing elevated levels of geopolitical and
macroeconomic uncertainty in the markets. For reference the AIM market in the
UK increased 2.0 percent over the same period. The AIM portfolio remains in
good financial health and is exposed to structural growth areas providing some
insulation from the deteriorating economic conditions.

 

The software sector provided the largest positive contributor to performance
with Cerillion, a provider of billing and charging software to the telecoms
industry continuing to deliver strong revenue and profit growth. Property
Franchise Group, a franchised estate agency business focussed primarily on
lettings, also performed positively during the year following its takeover of
Belvoir Lettings.

 

The largest detractors from performance were Crossword Cybersecurity, a cyber
consultancy and software provider, which was subscale and exhibited a
challenging cash runway; and Inspired, an energy procurement and optimisation
consultancy, which announced the potential for certain large customer projects
to be delayed impacting current year revenue and profits.

 

We continue to 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. Many of the larger
quoted investments have been long- term holdings. These companies are
typically profitable, cash generative businesses with low levels of financial
gearing and continue to have attractive long-term growth prospects.

 

Divestments

There were two full realisations during the year, both corporate actions, in
Gresham House and Gama Aviation whose proceeds of £0.1 million and £0.1
million represented gross multiples of 3.9x and 0.6x cost respectively. Our
investment in DeepVerge, an environmental and life sciences group, was written
off during the year although the NAV impact of this was limited during the
year as the value of this investment had decreased in previous years.

 

The opportunity to crystallise further profits was taken for Cerillion; over
the course of the year proceeds of £8.2 million were realised at 21.1x cost.

 

In addition to this, liquidation proceeds of £0.1 million were received for
InterQuest, which was written off in September 2023.

 

 

Unquoted portfolio

 

Performance

The unquoted portfolio decreased in value by 9.0 per cent during the year. The
macroeconomic environment remained challenging for our portfolio companies
with many experiencing difficult trading conditions and lengthening of product
and services sales cycles, most notably consumer related businesses.

 

This was a disappointing performance which reflects the immaturity of the
unquoted portfolio. Earlier stage investment delivered lower levels of growth
than had been forecast resulting in shortened cash runways. With this
increased risk profile it is appropriate to have reduced the holding value of
a number of the companies within our portfolio. Gresham House's experienced
Non-Executive Directors and consultants continue to support the portfolio
companies during these turbulent times with the expectation that a number of
these companies will recover value as they trade out of difficult conditions
and / or raise further capital.

 

Panthera Biopartners and Ozone API were the two investments that made the
biggest positive contribution in the year. Panthera, a provider of recruitment
services for clinical trials, delivered impressive sales growth and
profitability during the year as a result of new contract wins. Ozone API, a
software developer providing banks and financial institutions with low-cost,
compliant APIs, was a new investment in the year. The company grew in line
with expectations and the valuation benefitted from the preference structure
of the investment.

 

The largest detractors from performance were in the healthcare and technology
sectors. eConsult, an online consultation provider used by GP practices and
hospitals, experienced increased competition during the year and an ongoing
challenge of funding for its hospital product, leading to a much reduced cash
runway. This led to the decision to seek a new owner for the business and
eConsult was acquired by Huma Therapeutics Ltd in a share for share
transaction in September 2024. Huma is a well funded digital healthcare
business which specialises in continuous patient monitoring. RevLifter, an AI
platform using advanced behavioural analytics to deliver tailored promotions
to users, suffered from its largest customer, a large US retailer, more than
halving its spending.

 

As Manager we remain highly engaged with the management teams within the
portfolio, sharing insight and best practice to help them both manage risk and
spot opportunities in a quickly changing environment. We have continued to
invest in our portfolio and in-house talent teams, which alongside our
extensive network of earlier stage, high growth company experts, ensure we are
well positioned to help the companies we invest in to navigate the challenges
they face whilst also continuing to develop and scale.

 

Divestments

There was one full realisation in the unquoted portfolio during the year with
proceeds of £0.1 million received from the realisation of FundingXchange, for
a gross multiple of 0.1x cost. In addition to this, earn out proceeds were
received on Evotix of £0.1 million with a gross money multiple of 0.8x cost.
Our investment in Armstrong Craven, a provider of executive search and
business intelligence services, was written off during the year although the
value of this investment had largely decreased in previous years.

 

Collective investment vehicles

The Company's investments in the WS Gresham House UK Micro Cap Fund ("Micro
Cap"), WS Gresham House UK Multi Cap Income Fund ("Multi Cap") and WS Gresham
House UK Smaller Companies Fund ("Small Cap") remain a core component of the
Company's portfolio construction. These investments provide shareholders with
additional diversification through exposure to an additional 77 underlying
companies, as well as access to the potential returns available from a larger
and more established group of companies that fall within the Manager's core
area of expertise.

 

Over the year, Small Cap and Micro Cap delivered returns of 31.8 per cent and
9.8 per cent respectively, compared to the IA UK Smaller Companies sector
which returned 16.1 per cent. Multi Cap delivered a return of 20.5 per cent,
compared to the IA UK Equity Income sector which returned 15.0 per cent.

 

Micro Cap and Multi Cap continue to be both highly rated by independent
ratings agencies. Micro Cap's cumulative performance is currently second
quartile within the IA UK Smaller Companies sector over the past 10 years.
Multi Cap's cumulative performance has remained the top quartile within the IA
UK Equity Income sector since launch in June 2017 and is the best performer
over five years. Small Cap has also achieved top quartile cumulative
performance since launch in 2019 and is the third best performing fund over
the past five years within the IA UK Smaller Companies sector.

 

Liquid assets (cash and near cash)

The Company had cash and liquidity OEICs of approximately £25.8 million at
the year-end. This asset class is conservatively managed to take minimal or no
capital risk. The average 7 day yield on the liquidity OEICs was 4.9 per cent
at the end of the year.

 

Third party independent valuations

During the year, the Company engaged the services of Lincoln International and
Kroll to conduct independent third party valuations as a means of managing the
Board's risk in respect of a systematic error regarding the valuation of one
or more of the material VCT portfolio assets. The responsibility for the
preparation of draft valuations lies with the Manager, and this does not
constitute outsourcing of any part of the valuation, and the Board is
responsible for the approval of valuations. The Manager uses these independent
valuations in conjunction with their own valuations to provide independent
assurance and risk mitigation to the Board and the Board continues to support
this. Four unquoted investments were selected focussing on the higher valued
assets in the portfolio, which also covered different characteristics such as
value based on both revenue and EBITDA multiples and those with a range of
both equity and loan instruments. In July 2024, the Board assessed the use of
the third party valuations and concluded that the process had provided comfort
on the Manager's controls and the quality of the Manager's processes compared
to the market. Furthermore, the Board agreed to reassess the use of third
party independent valuations on a regular basis.

 

ESG Highlights

Following the year end, we commenced our latest ESG survey of our unquoted
portfolio companies, to identify how these companies think about ESG and which
ESG data is already being reported and monitored. Further details on our ESG
approach and policies can be found in the strategic report in the full Annual
Report and Accounts.

 

 

Outlook

Geo-political flux is likely to persist throughout 2025, although the UK
election result will hopefully allow more clarity on the future economic and
political landscape. That being said, the impact of the UK Government's first
budget has caused an element of short term market turbulence, potential
inflationary pressures and pausing of interest rate reductions.

 

This environment should present attractive opportunities with the advantage of
being able to take a longer-term view of both new and portfolio follow-on
investments. The early stage cohort of investments are taking on the
challenges presented and are expected to accelerate their funding plans,
however this should also produce some compelling follow-on investment
opportunities.

 

Gresham House's seasoned investment managers are a vital source of knowledge
and experience available to support the Company's portfolio of management
teams. In this respect, Gresham House is well placed by having one of the
largest and most experienced portfolio teams in the industry.

 

Looking into 2025, the Manager remains cautiously optimistic that the
combination of a somewhat improving economic backdrop, greater political
stability and a more attractive valuation environment will produce attractive
investment opportunities when viewed with a long- term perspective.

 

Gresham House Asset Management Ltd

Manager

23 December 2024

 

 

Investments in the year*

 

Invested a total of £13.4 million in to:

·      £5.520 million in to five new unquoted investments

·      £3.814 million in to nine existing unquoted investments

·      £2.820 million in to two new AIM-traded investments

·      £1.253 million in to three existing AIM-traded investments

 

 

October 2023

Eden Research plc- £0.9mn (quoted, follow on)

 

December 2023

Ozone Api - £1.8mn (unquoted, new investment)

CitySwift - £0.9mn (unquoted, new investment)

Patchworks - £0.9mn (unquoted, follow on)

Azarc.io - £0.7mn (unquoted, new investment)

Metrion Biosciences- £0.5mn (unquoted, follow on)

Focal Point Positioning - £0.2mn (unquoted, follow on)

 

March 2024

SciLeads - £0.9mn (unquoted, new investment)

PCI-PAL - £0.2mn (quoted, follow on)

Orri - £0.1mn (unquoted, follow on)

 

April 2024

Yappy - £0.3mn (unquoted, follow on)

Rockfish Group - £0.2mn (unquoted, follow on)

 

May 2024

CountingUp - £0.5mn (unquoted, follow on)

 

June 2024

OnSecurity Technology - £1.2mn (unquoted, new investment)

Dayrize - £0.1mn (unquoted, follow on)

 

July 2024

IntelliAM - £2.1mn (quoted, new investment)

Orri - £0.2mn (unquoted, follow on)

 

August 2024

Airfinity - £0.7mn (unquoted, follow on)

Oberon Investments - £0.1mn (quoted, follow on)

 

September 2024

Earnz - £0.7mn (quoted, new investment)

Dayrize - £0.1mn (unquoted, follow on)

 

* Investments in to unquoted and AIM investments only.

 

Realisations in the year

                                                    First        Original                        Overall     IRR

multiple
                                                    investment   book cost(#) Proceeds(‡)
 Company                                            date         £'000           £'000           return (x)  (%)
 Unquoted realisations
 Funding Xchange Ltd               Full trade sale  Nov 19       795             50              0.1         -
 Armstrong Craven Ltd              Written off      Jun 13       664             -               1.1*        1.6
 Total unquoted realisations                                     1,459           50
 AIM-traded realisations
 Cerillion plc                     Market sale      Nov 15       388             8,171           21.1        43.4
 Gama Aviation plc                 Tender offer     Nov 10       1,004           573             0.6         -
 Gresham House plc                 Takeover         Nov 14       137             530             3.9         15.9
 Deepverge plc                     Written off      Jun 21       1,590           -               -           -
 Total AIM-traded realisations                                   3,119           9,274
 Total realisations in the year**                                4,578           9,324

 

During the year, liquidation proceeds of £114k were received from InterQuest
Group plc, which was written off in September 2023; and earn out proceeds of
£69k were received from Evotix Ltd, which was realised in May 2023; and
liquidation proceeds of £14k were received from Crawshaw Group plc, was
written off in October 2018.

 

# 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.

** Includes unquoted and AIM investments only.

 

 

Final Dividend

Subject to shareholder approval at the AGM, a final dividend of 2.25p per
share will be paid on 17 March 2025 to shareholders on the register at 14
February 2025. The ex-dividend date will be 13 February 2025, and the last
date for registering DRIP instructions will be 24 February 2025.

 

 

Annual General Meeting

The AGM will be held on 12 March 2025 at Saddlers' Hall EC2V 6BR. Shareholders
are invited to attend the Shareholder Event starting at 10.30am. This will
include presentations from the Company Chair, members of the Manager's team,
case studies and presentations from a number of portfolio companies as well as
a Q&A session. This will be followed by lunch. The formal business of the
AGM will start at 1.30pm. The 2025 Notice of Annual General Meeting can be
found on the Company's website and will be posted to shareholders shortly.

 

Further Information

The Annual Report and Accounts for the year ended 30 September 2024 and the
2025 Notice of Annual General Meeting will both be available today on
www.baronsmeadvcts.co.uk (http://www.baronsmeadvcts.co.uk) .

 

The Annual Report will be submitted shortly in full unedited text to the
Financial Conduct Authority's National Storage Mechanism and will be available
for inspection at data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) in accordance with
DTR 6.3.5(1A) of the Financial Conduct Authority's Disclosure Guidance and
Transparency Rules.

 

LEI: 2138008D3WUMF6TW8C28

 

END

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