BARONSMEAD VCT 5 PLC 
By
Baronsmead VCT 5 plc
Annual report & accounts for the year ended 31 December 2013
Financial Headlines
? Net asset value ("NAV") per share increased 41.94 per cent to 82.21p in the
year ended 31 December 2013, before deduction of dividends.
? Interim dividend of 2.0p paid for the six month period to 30 June 2013.
Proposed final dividend of 4.0p.
? Net annual dividend yield of 8.3 per cent. and gross annual yield of 11.1 per
cent.
? NAV total return of 124.2p to shareholders for every 100.0p invested at
launch.
Extract of the Strategic Report
The Strategic Report 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 05689280). 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 5 is a tax efficient listed company which aims to achieve
long-term investment returns for private investors, including tax-free
dividends.
Investment policy
? To invest primarily in a diverse portfolio of UK growth businesses, whether
unquoted or traded on AIM.
? Investments are made selectively across a range of sectors in companies that
have the potential to grow and enhance their value.
Further details on the investment policy and risk management are contained in
the `Other Matters' section of the Strategic Report below.
Cash Returned to Shareholders
The table below shows the cash returned to shareholders based on the
subscription price and the income tax reclaimed on subscription.
Cumulative Net Gross
Subscription Income tax Net cash dividends annual equivalend
price reclaim invested paid# yield* yield?
Year p p p p % %
subscribed
2006 - 100.00 40.00 60.00 32.20 6.9 9.2
Ordinary
2007 - C share 100.00 30.00 70.00 26.76 5.5 7.4
2011 - 71.80 21.54 50.26 14.00 9.9 13.2
Ordinary
2012 (Dec) - 63.70 19.11 44.59 8.00 17.6 23.5
Ordinary
2013 (March) - 64.70 19.41 45.29 6.00 16.8 22.5
Ordinary
# Includes proposed final dividend of 4.0p.
* Net annual yield represents the cumulative dividends paid expressed as an
annualised 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 (0.938904).
Chairman's Statement
This Chairman's Statement forms part of the Strategic Report.
I am pleased to report a 42 per cent. increase in the Company's Net Asset Value
("NAV") of 24.29p to 82.21p per share, before the payment of dividends.
Realising profits from some quoted investments has enabled the Directors to
propose a final dividend of 4.0p per share resulting in a total dividend per
share of 6.0p for the year.
INVESTMENT PERFORMANCE
The change in the NAV per share over the year is set out in the table below.
Pence per
ordinary
share
NAV as at 1 January 2013 57.92
(after deducting the final dividend of 2.0p for the
year to 31 December 2012)
Valuation uplift (41.9 per cent.) 24.29
NAV as at 31 December 2013 before dividends 82.21
Less: (2.00)
Interim dividend paid on 20 September 2013
Proposed final dividend of 4.0p, payable after (4.00)
shareholder approval on 18 April 2014
NAV as at 31 December 2013 after paying dividends 76.21
This year's strong investment performance has been achieved mainly due to the
significant growth in the quoted portfolio. The underlying value of the AIM and
Wood Street Microcap Investments increased by 75.5 per cent. and 55.0 per cent.
respectively. The NAV growth of unquoted investments was relatively flat
reflecting the fact that the unquoted portfolio is still immature.
The rise in quoted values heralded the 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.
PORTFOLIO ACTIVITY
As a result of an active year of new investment and realisations, the portfolio
has increased to 54 investments including £2.0 million in six new unquoted
investments, one of which utilised an existing acquisition vehicle. A total of
£1.1 million was invested in new and existing AIM/ISDX (ICAP Securities &
Derivatives Exchange (formerly PLUS Markets Group plc)) quoted companies and
sales of AIM quoted investments realised £4.0 million capital proceeds and
delivered net gains of £1.8 million.
Good progress was made during the year in changing the asset mix to a greater
percentage of unquoted investments with 14 unquoted companies in the portfolio at
the end of the year versus nine at the end of 2012. This progress is somewhat
masked in the NAV value due to the significant increase in the value of quoted
investments.
LONG TERM PERFORMANCE
This year's strong investment performance has increased the NAV total return at
31 December 2013 to 124p for each 100p invested in Baronsmead VCT 5 since
launch in 2006. Cumulative tax free dividends since launch will have amounted
to 32.2p per share, representing an average annual dividend of 4.0p per share.
The Company's investment objective remains focussed on companies with strong
growth potential so as to produce consistent returns for shareholders over the
long-term. The significant increase in value and the successful realisation of
a number of quoted investments has generated excellent returns this year and
enabled an increased final dividend. It is anticipated that further
opportunities to realise profits from the quoted portfolio could provide short
to medium term benefits whilst the development of the unquoted portfolio should
provide longer term rewards.
SHAREHOLDER MATTERS
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
5.1 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 process alongside other VCT Managers and the Association
of Investment Companies ("AIC") with the aim of ensuring that any draft
legislation 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 eighth Annual
General Meeting to be held on Monday, 14 April 2014 at the Plaisterers' Hall,
One London Wall, London, EC2Y 5JU at 2 p.m. This will be followed by
presentations from the Manager. A joint shareholder workshop with BVCT3
shareholders will be held at 1.00pm.
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
several 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 on origination and this has enabled it to continue to find
investments with good potential despite the downturn. The addition of six new
unquoted and eight new quoted companies during 2013 hopefully signals a
sustainable increase in the number of good investment opportunities.
The performance of the quoted markets over the past year is further evidence of
growing confidence in the UK, however we consider that the uplift in value of
the Company's quoted portfolio is not only based upon market sentiment but also
on strong fundamentals. The portfolio as a whole remains widely diversified,
well resourced and adequately funded. The Manager's hands on style on its
unquoted investments and engagement with its quoted investments should help
these companies in their development to take advantage of the current
favourable environment.
We believe that the Company is well placed to take advantage of the recovery as
it gathers momentum.
John Davies
Chairman
17 February 2014
Manager's Review
The year has been characterised by a stronger period of new investment,
particularly in unquoted investments. Six new unquoted investee companies have
been added to the portfolio and a further one has been added since the end of
the financial year.
In addition, strong upward performance has been delivered by value growth in
the quoted portfolio which is a welcome reward for patience through an
uncertain quoted market over recent years.
The unquoted portfolio is still relatively new following conversion of
Baronsmead VCT 5 plc to a generalist in 2010. It is too early, therefore, to
expect any material unrealised value growth or any realisations from the
unquoted portfolio.
PORTFOLIO REVIEW
Overview
The net assets of £39.9 million were invested as follows:
Asset class NAV % of Number of Annual return
(£M) NAV investees %
Unquoted 6.4 16 14 0.8
Quoted 24.9 62 40 75.5
Wood Street Microcap 5.2 13 37 55.0
Cash and near cash 3.4 9 - -
During the year there were;
? New investments of £2.8 million in 13 new companies and £0.4 million in 8
follow ons;
? Divestments of £4.1 million from 3 full exits and 2 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, 83 per cent. of the 54
companies in the portfolio (excluding Wood Street Microcap) were progressing
steadily or better.
Unquoted Private Equity Portfolio
The unquoted portion of the portfolio is valued using a consistent process
every three months which the Board oversees and approves. Typically in the
Baronsmead family, almost all of the value creation in unquoted investments
comes from operational improvements (revenue and margin growth), rather than
financial leverage.
Quoted Portfolio (AIM traded and other listed investments)
There has been a significant uplift in the quoted portfolio of 75.5 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 quoted 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 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 being reflected in
improved quoted performance.
Realisations during the year from the quoted portfolio totalled £4.0 million at
an overall multiple of 1.84x cost which is an excellent result. Notably within
this is the full realisation due to a takeover of FFastFill plc (2.9x cost) and
the partial sale in the market of Tasty plc (2.8x cost). One disappointment was
the failure of Zattikka plc which resulted in a total loss of the £0.3 million
investment made in April 2012.
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 5 had invested £2.7 million
through Wood Street into a portfolio of 37 companies and this investment is now
valued at £5.2 million. Wood Street generated a positive return of 55 per cent.
over the year.
Liquid assets (cash and near cash)
Baronsmead VCT 5 had cash and near cash resources of approximately £3.4 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 some cash from Wood
Street should this ever be required to supplement liquid assets.
Unquoted Investments
During the year, £2.1 million was invested in 6 unquoted companies, 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 following tables.
? 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 £100m 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.
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 in depth sector research and specialisation 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. We are increasingly confident that the economic backdrop is
more favourable than it has been for a long time.
Whilst it is expected that work in the quoted arena will deliver future
positive growth, the high annual growth achieved in this period should be
considered as exceptional.
ISIS EP LLP
Investment Manager
17 February 2014
Other Matters
Dividend policy
The Board seeks to maintain the level of the dividend to shareholders at 4.0p
per share. The ability to meet this objective depends significantly on the
level and timing of profitable realisations and it cannot be guaranteed.
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 5 plc is a tax efficient 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 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 investments companies ("OEICs"), UK gilts and treasury
bills.
UK companies
Investments are made primarily 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. The current VCT
conditions, amongst others, state that the Company may not invest more than 15
per cent. by value of its investments calculated in accordance with Section 278
of the Income Tax Act 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. Any
uninvested funds are held in cash and interest bearing securities. It is
intended that at least 75 per cent. of any funds raised by the Company will be
invested in VCT qualifying investments. 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 the 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.
The allocation policy across the Baronsmead VCTs is carefully monitored by
the Manager and the Directors and is approved by the Board at its quarterly
meetings.
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 Articles permit borrowing of up to 25 per cent. of gross assets,
to give a degree of investment flexibility, though the Company's policy is to
use borrowing for short-term liquidity purposes only. 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 - events such as an economic recession and movement in interest
rates could affect smaller companies' valuations more than those of larger
companies.
- 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.
Changes in UK and EU legislation, regulations or government policy could
significantly influence the decisions of investors or impact upon the way in
which the Company continues to operate.
- 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 below. Inadequate controls might
lead to misappropriation of assets or fraud. Inappropriate accounting policies
might lead to misreporting or breaches of regulations.
- Market - 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 - 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 - 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 - 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 in the full Annual Report and Accounts.
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.
Performance Incentive
The Manager is currently entitled to a performance fee of 10 per cent. of the
excess of the total return to shareholders exceeding 8 per cent. per annum
(on a simple not compound basis).
Total return for the purposes of calculating the performance fee entitlement
means increases in the NAV of the Company, calculated on the assumption that
any dividends paid by the Company are reinvested by subscription for new shares
at NAV per share. Such performance fee will not be triggered, however, until
the total return on the net proceeds of the initial offer of the Company's
shares exceeds 140 per cent. The performance fee payable in respect of any
period for which it is calculated shall not exceed 5 per cent. of the NAV of
the Company for that period.
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 5 in ways that best suit
their personal investment and tax planning and in a way that treats all
shareholders equally.
? Fund raising | From time to time the Company seeks to raise additional funds
by issuing new shares at a premium to the latest published 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 260,000 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. Approximately
230,000 shares were bought by investors in the Company's existing shares in the
year to 31 December 2013.
On behalf of the Board
John Davies
Chairman
17 February 2014
Summary Investment Portfolio
Investment Classification at 31 December 2013
Sector by value
Business Services 28%
Consumer Markets 17%
Financial Services 1%
Healthcare & Education 25%
Technology, Media & 29%
Telecommunications ("TMT")
Total Assets by value
Unquoted - loan note 14%
Unquoted - equity 2%
AIM, listed, ISDX & 75%
collective investment
vehicle
Listed interest bearing 4%
securities
Net current assets 5%
principally cash
Time Investments Held by
value
Less than 1 year 10%
Between 1 and 3 years 26%
Between 3 and 5 years 24%
Greater than 5 years 40%
Table of Investments and Realisations
Investments in the year
Company Location Sector Activity Book
cost
£'000
Unquoted investments
New
Create Health Limited London Healthcare & Provider of 473
Education fertility services
Carousel Logistics Kent Business Provider of bespoke 425
Limited Services logistics and
supply
chain solutions
Key Travel Limited London Business Travel management 424
Services company, focused on
the non-profit
sector
Eque2 Limited Manchester TMT* Enterprise resource 390
planning (ERP)
solutions provider
to the construction
industry
Armstrong Craven Manchester Business Provider of 299
Limited Services executive search
and business
intelligence
services
Follow on
Impetus Holdings London Business Automotive 88
Limited Services consultancy and
outsourced
service provider
Total unquoted investments 2,099?
AIM-traded & ISDX investments
New
Everyman Media Group London Consumer Boutique 174
plc Markets independent cinema
chain
MartinCo plc Bournemouth Consumer UK letting agency 153
Markets franchise network
Bioventix plc Farnham, Surrey Healthcare & Develops sheep 101
Education monoclonal
antibodies
Daily Internet plc Stockport TMT* SME Domain 100
registration &
hosting
Ideagen plc Matlock TMT* Compliance software 100
solutions
Sanderson Group plc Coventry TMT* Retail and 100
manufacturing IT
Pinnacle Technology Stirlingshire TMT* B2B telecoms and IT 75
Group plc reseller
One Media iP Group Buckinghamshire TMT* Content acquisition 25
plc and distribution
Follow on
Plastics Capital plc London Business Specialist plastics 84
Services products buy and
build
TLA Worldwide plc London Business Baseball sports 50
Services management and
marketing business
Green Compliance plc Worcester Business Small business 48
Services compliance
EG Solutions plc Staffordshire TMT* Back office 35
optimisation
software
Paragon Entertainment London Consumer Visitor attraction 20
Limited Markets
Accumuli plc Salford TMT* Managed IT security 18
Tangent London Business Digital marketing 17
Communications plc Services and online print
services
Total AIM-traded & ISDX investments 1,100
Total investments in the year 3,199
*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 £0.42 million in Luxury For Less, an online bathroom products
retailing business.
Realisations in the year
Company First 31 December Proceeds? Overall
Investment 2012 multiple
date valuation return*
£'000 £'000
Unquoted realisations
Consumer Investment Loan Apr 12 20 20 1.0
Partners Limited repayment
Total unquoted realisations 20 20
AIM-traded realisations
FFastFill plc Full trade Jun 07 1,651 2,359 2.9
sale
Tasty plc Market sale Oct 06 490 995 2.8
PROACTIS Holdings plc Full market May 06 369 538 1.1
sale
Active Risk Group plc Full trade May 10 65 153 0.8
sale
Zattikka plc Write off Apr 12 136 - 0.0
Total AIM-traded realisations 2,711 4,045
Total realisations in the year 2,731 4,065#
? 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.
# Proceeds of £5,000 were also received in respect of Twenty plc, which was
written off in a prior period.
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, which has been
audited by the auditors of the investee companies.
1. ANPARIO PLC - Surrey
All ISIS EP LLP managed funds
First investment: May 2006
Total cost: £2,000,000
Total equity held: 14.71%
Baronsmead VCT 5 only
Cost: £900,000
Valuation: £4,305,000
Valuation basis: Bid Price
% of equity held: 6.62%
Year ended 31 December 2012 2011
£ million £ million
Revenue: 23.5 19.2
EBITA: 1.5 1.8
Net Assets: 17.9 16.0
No. of employees: 88 74
(Source: Anapario plc, Annual Report and Accounts, 31 December 2012)
2. TASTY PLC - London
All ISIS EP LLP managed funds
First investment: October 2006
Total cost: £3,223,000
Total equity held: 14.52%
Baronsmead VCT 5 only
Cost: £845,000
Valuation: £2,838,000
Valuation basis: Bid Price
% of equity held: 4.40%
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)
3. 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 5 only
Cost: £878,000
Valuation: £2,811,000
Valuation basis: Bid Price
% of equity held: 3.96%
Year ended 30 June 2013 2012
£ million £ million
Revenue: 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)
4. ACCUMULI PLC - Salford
All ISIS EP LLP managed funds
First investment: November 2010
Total cost: £2,707,000
Total equity held: 23.40%
Baronsmead VCT 5 only
Cost: £689,000
Valuation: £1,924,000
Valuation basis: Bid Price
% of equity held: 6.28%
Year ended 31 March 2013 2012
£ million £ million
Revenue: 14.1 12.1
EBITA: 2.0 1.8
Net Assets: 15.8 10.2
No. of employees: 55 38
(Source: Accumuli plc, Annual Report and Accounts 2013)
5. PLASTICS CAPITAL PLC - London
All ISIS EP LLP managed funds
First investment: November 2007
Total cost: £3,540,000
Total equity held: 11.71%
Baronsmead VCT 5 only
Cost: £894,000
Valuation: £1,109,000
Valuation basis: Bid Price
% of equity held: 2.96%
Year ended 31 March 2013 2012
£ million £ million
Revenue: 31.4 32.1
EBITA: 3.5 4.2
Net Assets: 20.6 19.4
No. of employees: 302 297
(Source: Plastics Capital Directors Report and Financial Statements 31 March
2013)
6. TLA WORLDWIDE PLC - London
All ISIS EP LLP managed funds
First investment: November 2011
Total cost: £3,604,000
Total equity held: 20.39%
Baronsmead VCT 5 only
Cost: £670,000
Valuation: £1,001,000
Valuation basis: Bid Price
% of equity held: 3.81%
Year ended 31 December 2012 2011*
US$million US$million
Revenue: 15.1 13.8
EBITA: 6.6 6.1
Net Assets: 34.5 26.6
No. of employees: 51 30
(Source: TLA Worldwide Annual Report 2012)
*Revenue provided from unaudited proforma in 2012 financial statement
7. CRAWSHAW GROUP PLC - Rotherham
All ISIS EP LLP managed funds
First investment: June 2009
Total cost: £894,000
Total equity held: 9.10%
Baronsmead VCT 5 only
Cost: £894,000
Valuation: £933,000
Valuation basis: Bid Price
% of equity held: 9.10%
Year ended 31 January 2013 2012
£ million £ million
Revenue: 18.8 18.9
EBITA: 0.3 -
Net Assets: 10.1 9.9
No. of employees: 232 238
(Source: Crawshaw Group Plc Annual Report 31 January 2013)
8. DRIVER GROUP PLC - London
All ISIS EP LLP managed funds
First investment: June 2006
Total cost: £2,656,000
Total equity held: 18.90%
Baronsmead VCT 5 only
Cost: £403,000
Valuation: £915,000
Valuation basis: Bid Price
% of equity held: 2.76%
Year ended 31 December 2012 2011
£ million £ million
Revenue: 26.3 17.4
EBITA: 1.2 0.4
Net Assets: 7.5 6.7
No. of employees: 271 175
(Source: Driver Group, Annual Report & Accounts 2012)
9. ESCHER GROUP HOLDINGS PLC - Dublin
All ISIS EP LLP managed funds
First investment: August 2011
Total cost: £3,072,000
Total equity held: 9.70%
Baronsmead VCT 5 only
Cost: £614,000
Valuation: £867,000
Valuation basis: Bid Price
% of equity held: 1.94%
Year ended 31 December 2012 2011
US$ million US$ million
Revenue: 23.0 13.9
EBITA: 5.6 4.5
Net Assets: 35.1 25.7
No. of employees: 116 65
(Source: Escher Group Holding plc Annual Report 2012)
10. INSPIRED ENERGY PLC - Kirkham
All ISIS EP LLP managed funds
First investment: November 2011
Total cost: £1,500,000
Total equity held: 11.62%
Baronsmead VCT 5 only
Cost: £300,000
Valuation: £810,000
Valuation basis: Bid Price
% of equity held: 2.32%
Year ended 31 December 2012 2011
£ million £ million
Revenue: 5.3 1.5
EBITA: 2.6 0.9
Net Assets: 0.4 (2.1)
No. of employees: 54 32
(Source: Inspired Energy Plc Group Financial Statements 31 December 2012)
Extract from the Report of the Directors
The Chairman's Statement and the Corporate Governance statement in the Annual
Report form part of the Report of the Directors.
Results and Dividends
The Directors present the eighth Report and audited financial statements of the
Company for the year ended 31 December 2013.
Ordinary shares £'000
Profit on ordinary activities after taxation 11,916
Final dividend for 2012 of 2.0p per ordinary (929)
share paid on 15 April 2013
Interim dividend of 2.0p per ordinary share paid (998)
on 20 September 2013
Total dividends paid for the year (1,927)
Subject to approval at the forthcoming Annual General Meeting the proposed
final dividend of 4.0p per ordinary share will be paid on 18 April 2014 to
shareholders recorded on the register on 21 March 2014.
Issue and Buy-Back of Shares
As a result of a top-up offer on 13 March 2013, the Company allotted 4,302,472
new ordinary shares at a price of 64.70p per share, representing 8.17 per cent.
of the issued share capital following allotment with an aggregate nominal value
of £430,247.20, raising a further £2,783,800 of new funds (before expenses).
This allotment was in addition to the allotment made on 24 December 2012. The
terms of issue were set out in the Offer document dated 20 November 2012 and
the offer price was set on 19 March 2013.
Over the year the Company bought back a total of 1,050,000 ordinary shares with
a nominal value of 10p to be held in Treasury representing 2.0 per cent. of the
issued share capital at 31 December 2013. The total amount paid for these
shares was £650,200.
As at 17 February 2014 the Company held 2,982,296 shares in treasury and
49,679,204 were in circulation.
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) are 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 and procures the provision of secretarial,
administrative and custodian services to the Company. ISIS EP LLP receives an
annual accounting and secretarial fee that was initially fixed at £40,000 in
2006, and revised annually to reflect the movement in RPI, plus a variable fee
of 0.125 per cent. per annum of the net assets of the Company which exceed £5
million.
The management agreement may be terminated at any date by either party giving
twelve months' notice of termination. Under the management agreement adopted at
the Company's General Meeting on 14 December 2010, the Manager is entitled to
an annual investment management fee of an amount equivalent to 2 per cent. of
the net assets of the Company.
In light of the additional work required to identify, acquire, manage and sell
investments in unquoted companies, the annual investment management fee
increased to an amount equivalent to 2.1 per cent. of the net assets of the
Company on the date of the Company's first investment in an unquoted company
being made. Thereafter the annual investment management fee will be increased
by 0.1 per cent. of the net assets of the Company on each anniversary of the
date on which the Company made its first unquoted investment, up to a maximum
fee of 2.5 per cent. of the net assets of the Company.
Annual running costs are capped at 3.5 per cent. of the average net assets of
the Company during the year (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.
Co-investment Scheme
A co-investment scheme was introduced by the other Baronsmead VCTs in November
2004 whereby members of the Manager's investment team invest their own money
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.
Baronsmead VCT 5 changed its investment policy in December 2010 from an
AIM-focused VCT to that of a generalist VCT. In line with the other Baronsmead
VCTs the Board is keen to ensure that the Manager continues to have one of the
best investment teams in the VCT and private equity sector and considers the
scheme to be essential in order to attract, retain and incentivise the best
talent. The scheme is in line with current market practice in the private equity
industry and the Board believes that it aligns the interests of the Manager with
those of the Baronsmead VCTs since executives have to invest their own capital
in every unquoted transaction and cannot decide selectively which investments to
participate in. 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.
Since the Company only joined the co-investment scheme in 2010 following the
change in its investment policy, 14 investments in which the Company has
invested have been part of the scheme and none of these investments has yet
been realised.
ISIS Equity Partners - Advisory Fees
During the year to 31 December 2013, ISIS EP LLP received net income of £77,000
(2012: £38,500) in connection with advisory fees and incurred abort fees of
£Nil (2012: £26,400) with respect to investments attributable to Baronsmead VCT
5 plc.
Directors fees of £32,000 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 review new
investment opportunities, as appropriate, and review regularly the investment
portfolio of the Company. PwC work closely with the Manager but report directly
to the Board.
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 the
total voting rights of the Company.
Going Concern
After making enquiries, and bearing in mind the nature of the Company's
business and assets, the Directors consider that the Company has adequate
resources to continue in operational existence for the foreseeable future. In
arriving at this conclusion the Directors have considered the liquidity of the
Company and its ability to meet obligations as they fall due for a period of at
least twelve months from the date that these financial statements were
approved. As at 31 December 2013 the Company held cash balances and investments
in UK Gilts and Money Market Funds with a combined value of £3,657,000. 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 is therefore 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 ("UK GAAP").
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 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 Strategic Report, Directors' Report, 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.baronsmeadvct5.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 UK Accounting
Standards, give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company; and
? this Annual Report 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
John Davies
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.baronsmeadvct5.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 - 11,280 11,280 - 2,402 2,402
movements in fair
value of
investments
Realised gains on 2.3 - 1,339 1,339 - 186 186
disposal of
investments
Income 2.5 333 - 333 189 - 189
Investment 2.6 (171) (514) (685) (125) (377) (502)
management fee
Other expenses 2.6 (351) - (351) (317) - (317)
(Loss)/profit on (189) 12,105 11,916 (253) 2,211 1,958
ordinary activities
before taxation
Taxation on 2.9 - - - - - -
ordinary activities
(Loss)/profit on (189) 12,105 11,916 (253) 2,211 1,958
ordinary activities
after taxation
Return per ordinary 2.2 (0.38p) 24.59p 24.21p (0.58p) 5.06p 4.48p
share:
Basic
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 27,820 26,070
Profit on ordinary activities after taxation 11,916 1,958
Net proceeds of share issues & buy-backs 2,046 1,546
Other costs charged to capital 3.2 (5) (8)
Dividends paid 2.4 (1,927) (1,746)
Closing shareholders' funds 39,850 27,820
Balance Sheet
As at 31 December 2013
2013 2012
Notes £'000 £'000
Fixed assets
Investments 2.3 37,953 25,006
Current assets
Debtors 2.7 59 2,216
Cash at bank and on deposit 2,158 866
2,217 3,082
Creditors (amounts falling due within one year) 2.8 (320) (268)
Net current assets 1,897 2,814
Net assets 39,850 27,820
Capital and reserves
Called-up share capital 3.1 5,266 4,836
Share premium 3.2 4,016 1,746
Capital reserve 3.2 22,031 23,287
Revaluation reserve 3.2 9,389 (1,386)
Revenue reserve 3.2 (852) (663)
Equity shareholders' funds 2.1 39,850 27,820
Net asset value per share
- Basic 2.1 80.21p 59.92p
- Treasury 2.1 79.76p 59.80p
The financial statements were approved by the Board of Directors on 17 February
2014 and were signed on its behalf by:
John Davies (Chairman)
Cash Flow Statement
For the year ended 31 December 2013
2013 2012
£'000 £'000
Operating activities
Investment income received 310 193
Deposit interest received 6 3
Investment management fees paid (598) (496)
Other cash payments (328) (312)
Net cash outflow from operating activities (610) (612)
Financial investment
Purchases of investments (15,195) (21,391)
Disposals of investments 14,867 24,885
Net cash (outflow)/inflow from financial investment (328) 3,494
Equity dividends paid (1,927) (1,746)
Net cash (outflow)/inflow before financing (2,865) 1,136
Financing
Net proceeds of share issues & buy-backs 4,162 (692)
Other costs charged to capital (5) (8)
Net cash inflow/(outflow) from financing 4,157 (700)
Increase in cash 1,292 436
Reconciliation of net cash flow to movement in net cash
Increase in cash 1,292 436
Opening cash position 866 430
Closing cash at bank and on deposit 2,158 866
Reconciliation of profit on ordinary activities before
taxation to net cash outflow from operating activities
Profit on ordinary activities before taxation 11,916 1,958
Gains on investments (12,619) (2,588)
(Increase)/decrease in debtors (12) 6
Increase in creditors 105 12
Net cash outflow from operating activities (610) (612)
Notes to the Accounts
In preparing the 2013 financial statements, Baronsmead VCT 5 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 value
per
Number of ordinary share attributable attributable
shares
2013 2012 2013 2012 2013 2012
number number pence pence £'000 £'000
Ordinary shares 49,679,204 46,426,732 80.21 59.92 39,850 27,820
(basic)
Ordinary shares 52,661,500 48,359,028 79.76 59.80 42,005 28,921
(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 72.25p at 31 December
2013 (2012: 57.00p).
2.2 Return per share
Net (loss)/profit
Weighted average on ordinary
number of Return per activities after
ordinary shares ordinary share taxation
2013 2012 2013 2012 2013 2012
number number pence pence £'000 £'000
Revenue 49,225,695 43,660,386 (0.38) (0.58) (189) (253)
Capital 49,225,695 43,660,386 24.59 5.06 12,105 2,211
Total 24.21 4.48 11,916 1,958
2.3 Investments
Purchases or sales of investments are recognised at the date of transaction.
Investments are measured at fair value. For AIM-traded 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 1,499 300
Investments traded on AIM 24,389 16,864
Investments listed on ISDX 154 -
Investments listed on LSE 361 278
26,403 17,442
Level 2
Collective investment vehicle (Wood Street Microcap 5,236 3,379
Investment Fund)
Level 3
Unquoted investments 6,314 4,185
37,953 25,006
Level 1 Level 2 Level 3
Listed
Interest Listed Collective
bearing Traded on Traded investment
securities on AIM ISDX on LSE vehicle Unquoted Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Opening book cost 300 17,767 - 1,140 2,664 4,521 26,392
Opening - (903) - (862) 715 (336) (1,386)
unrealised
(depreciation)/
appreciation
Opening valuation 300 16,864 - 278 3,379 4,185 25,006
Movements in the
year:
Purchases at cost 11,996 999 101 - - 2,099 15,195
Sales - proceeds (10,797) (4,050) - - - (20) (14,867)
- realised gains - 1,339 - - - - 1,339
on sales
Unrealised gains - 505 - - - - 505
realised during
the year
Increase in - 8,732 53 83 1,857 50 10,775
unrealised
appreciation/
(depreciation)
Closing valuation 1,499 24,389 154 361 5,236 6,314 37,953
Closing book cost 1,499 16,560 101 1,140 2,664 6,600 28,564
Closing - 7,829 53 (779) 2,572 (286) 9,389
unrealised
appreciation
Closing valuation 1,499 24,389 154 361 5,236 6,314 37,953
Equity shares - 24,389 154 361 5,236 693 30,833
Loan notes - - - - - 5,621 5,621
Fixed income 1,499 - - - - - 1,499
securities
Closing valuation 1,499 24,389 154 361 5,236 6,314 37,953
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 £0.3 million or 5.5 per cent. lower. Using the upside alternatives the value
would be increased by £0.3 million or 4.7 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
- Interim dividend of 2.0p - 998 998 - - -
per ordinary share paid on
20 September 2013
For the year ended 31
December 2012
- Interim dividend of 2.0p - - - - 870 870
per ordinary share paid on
21 September 2012
- Final dividend of 2.0p - 929 929 - - -
per ordinary share paid on
15 April 2013
For the year ended 31
December 2011
- Final dividend of 2.0p - - - - 876 876
per ordinary share paid on
18 April 2012
- 1,927 1,927 - 1,746 1,746
A final dividend of 4.0p per share is proposed in respect of the year ended 31
December 2013.
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 Total Quoted Unquoted Total
securities securities securities securities
£'000 £'000 £'000 £'000 £'000 £'000
Income from investments?
UK franked 277 - 277 178 - 178
UK unfranked 3 46 49 3 5 8
280 46 326 181 5 186
Other income?
Deposit interest 7 3
Total income 333 189
Total income comprises:
Dividends 277 178
Interest 56 11
333 189
? 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 171 514 685 125 377 502
Performance fee - - - - - -
171 514 685 125 377 502
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, received a fee of 2.2 per cent. of the net assets of
the Company until the anniversary of the first unquoted investment on 18
October, when the fee increased thereafter to 2.3 per cent. calculated and paid
on a quarterly basis.
The annual management fee will be increased from an amount equivalent to 2.0
per cent. of the net asset value of the Company to 2.5 per cent. (through an
increase of 0.1 per cent. of the net asset value of the Company on the date on
which the Company made its first investment in an unquoted company (18 October
2011) and a further increase of 0.1 per cent. of the net asset value of the
Company on each anniversary thereafter).
The Manager is entitled to a performance fee when the total return to
shareholders exceeds 8 per cent. per annum (on a simple basis). To take account
of the co-investment scheme mentioned in the Report of the Directors, the
performance fee entitlement of 20 per cent. has been reduced by 50 per cent. to
10 per cent. The performance fee payable in any one year shall not exceed 5 per
cent. of the net asset value. No performance fee is payable for the year to
31 December 2013 (2012: nil).
Amounts payable to the Manager at the year end are disclosed in note 2.8.
Other expenses
2013 2012
£'000 £'000
Directors' fees 73 71
Secretarial and accounting fees paid to the Manager 86 75
Remuneration of the auditors and their associates:
- audit 20 19
- other services supplied pursuant to legislation 5 5
(interim review)
- other services supplied relating to taxation 6 7
- other services supplied relating to financial 5 -
statements' reorganisation
Other 153 140
351 317
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 the 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 59 47
Amounts due from fundraising - 2,169
59 2,216
2.8 Creditors (amounts falling due within one year)
2013 2012
£'000 £'000
Management, performance, secretarial and accounting fees 229 161
due to the
Manager
Fundraising costs - 53
Other creditors 91 54
320 268
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
(Loss)/profit on ordinary (189) 12,105 11,916 (253) 2,211 1,958
activities before taxation
Corporation tax at 20 per (38) 2,421 2,383 (51) 442 391
cent. (2012: 20 per cent)
Effect of:
Non-taxable gains - (2,524) (2,524) - (518) (518)
Non-taxable dividend income (55) - (55) (36) - (36)
Losses carried forward 93 103 196 87 76 163
Tax charge for the year - - - - - -
At 31 December 2013 the Company had surplus management expenses of £3,603,000
(2012: £2,624,000)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
48,359,028 ordinary shares of 10p each listed at 31 December 2012 4,836
4,302,472 ordinary shares of 10p each issued during the year 430
52,661,500 ordinary shares of 10p each listed at 31 December 2013 5,266
1,932,296 ordinary shares of 10p each held in treasury at 31 (193)
December 2012
1,050,000 ordinary shares of 10p each repurchased during the year (105)
and held in treasury
2,982,296 ordinary shares of 10p each held in treasury at 31 (298)
December 2013
49,679,204 ordinary shares of 10p each in circulation* at 31 4,968
December 2013
* Carrying one vote each.
During the year the Company bought into treasury 1,050,000 ordinary shares
representing 2.2 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 Revenue Share Revaluation
reserve reserve Total premium Reserve* Total
£'000 £'000 £'000 £'000 £'000 £'000
At 1 January 2013 23,287 (663) 22,624 1,746 (1,386) 360
Gross proceeds of - - - 2,354 - 2,354
share issues
Purchase of shares (651) - (651) - - -
for treasury
Expenses of share (3) - (3) (84) - (84)
issue and buybacks
Other costs charged (5) - (5) - - -
to capital
Reallocation of prior 505 - 505 - (505) (505)
year unrealised gains
Realised gain on 1,339 - 1,339 - - -
disposal of
investments#
Net increase in value - - - - 11,280 11,280
of investments#
Management fee (514) - (514) - - -
capitalised#
Revenue loss on - (189) (189) - - -
ordinary activities
after taxation#
Dividends paid in the (1,927) - (1,927) - - -
year
At 31 December 2013 22,031 (852) 21,179 4,016 9,389 13,405
# The total of these items is £11,916,000, which agrees to the total profit on
ordinary activities.
* Changes in fair value of investments are dealt with in this reserve.
Distributable reserves include the net unrealised loss on investments whose
prices are quoted in an active market and deemed readily realisable in cash.
In 2012, the Revaluation reserve was included in distributable reserves because
this figure was negative.
Share premium is recognised net of issue costs.
The Company does not have any externally imposed capital requirements.
3.3 Financial instruments risks
The Company's financial instruments comprise equity and fixed interest
investments, cash balances and liquid resources including debtors and
creditors. The Company holds financial assets in accordance with its investment
policy to invest in a diverse portfolio of UK growth businesses.
The Company's investing activities expose it to a range of financial risks.
These key risks and the associated risk management policies to mitigate these
risks are described below.
Market risk
Market risk includes price risk on investments and interest rate risk on
investments and other financial assets and liabilities.
Price risk
The investment portfolio is managed in accordance with the policies and
procedures described above 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% 5% 5% 5%
increase decrease increase 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 79 1,507 (1,507) 82 1,026 (1,026)
& CIV
Unquoted 17 316 (316) 17 209 (209)
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 average
Weighted average Weighted time for
average time for average which
Total interest which rate Total interest rate
investment rate is fixed investment rate is fixed
£'000 % days £'000 % days
Fixed rate loan 5,621 7.25 # 3,783 6.96 #
note
securities
Fixed interest 1,499 0.26 48 300 0.12 21
instruments
Cash at bank & on 2,158 - - 866 - -
deposit
9,278 4,949
# 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 1,499 300
Cash at bank & on deposit 2,158 866
Interest, dividends and other receivables 59 2,216
3,716 3,382
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 in the full Annual Report and Accounts.
The cash held by the Company is held by JPM and Lloyds TSB. 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 10.8 per
cent. of the net assets attributable to the Company's shareholders at 31
December 2013 (2012: 6.0 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 £3,657,000 (2012: £1,166,000).
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.
3.5 Post balance sheet event
A new investment of £423,000 was made in Kingsbridge Risk Solutions Ltd on 10
January 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 2pm at
Plaisterers' Hall, One London Wall, London, EC2Y 5JU.
END
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on this announcement (or any other website) is
incorporated into, or forms part of, this announcement.Baronsmead VCT 5 PLC : - Annual Financial Report
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