BARONSMEAD VENTURE TRUST PLC 
By
Baronsmead VCT 2 plc
Half Yearly Financial Report
For the six months ended 31 March 2014
The Directors announce the unaudited half-yearly financial report for the six
months ended 31 March 2014 as follows:-
Copies of the half yearly report can be obtained from the following website:
www.baronsmeadvct2.co.uk .
Investment Objective
Baronsmead VCT 2 is a tax efficient listed company which aims to achieve
long-term investment returns for private investors, including tax free
dividends.
Investment Policy
● To invest primarily in a diverse portfolio of UK growth businesses, whether
unquoted or traded on AIM.
● Investments are made selectively across a range of sectors in companies that
have the potential to grow and enhance their value.
Dividend Policy
The Board of Baronsmead VCT 2 aims to sustain a minimum annual dividend level
at an average of 6.5p per ordinary share, mindful of the need to maintain net
asset value. The ability to meet these twin objectives depends significantly on
the level and timing of profitable realisations and cannot be guaranteed. There
will be variations in the amount of dividends paid year on year.
Since launch, the average annual tax free dividend paid to shareholders
including the 8.0p interim dividend, has been 6.9p per share (equivalent to a
pre-tax return of 9.2p per share for a higher rate taxpayer). For shareholders
who claimed tax reliefs on initial subscription of 20 per cent, 30 per cent or
40 per cent, their returns would have been higher.
FINANCIAL HEADLINES
● 9.5% - Net asset value ("NAV") per share increased 9.5 per cent to 110.19p in
the six months to 31 March 2014, before deduction of dividends.
● 315.9p - NAV total return to shareholders for every 100.0p invested at
launch.
● 8.0p - Dividends totalled 8.0p in the six months to 31 March 2014, after the
interim dividend of 8.0p paid on 7 March 2014.
● £5.3 m - Invested £3.3m in unquoted and £2.0m in quoted investments in the
six months to 31 March 2014.
CHAIRMAN'S STATEMENT
I am delighted to report a 9.5 per cent (9.56p) increase in Net Asset Value
("NAV") per share before payment of dividends for the six months to 31 March
2014.
This strong growth was driven largely by a long awaited increase in the
valuation of the quoted portfolio. This is a welcome reward for patience
through the uncertain market conditions in recent years and it helps to confirm
the investment style of the Company which concentrates on the fundamentals of
management quality and business innovation.
The valuation of unquoted investments in the portfolio has been broadly flat in
the quarter, reflecting the fact that the majority of these investments are
recent acquisitions which have yet to achieve their potential. However
following the profitable realisation of several older investments in the latter
half of 2013, an interim dividend of 8p a share was paid on 7 March 2014.
The Company raised £9.7 million (after costs) and, on 14 March 2014, allotted
9,633,363 new ordinary shares at 103.8p a share.
At 31 March 2014 the NAV was £86.5 million equivalent to 102.19p a share as
follows:
Pence
per
share
NAV as at 1 October 2013 100.63
Valuation uplift (9.5 per cent) 9.56
NAV as at 31 March 2014 before dividends 110.19
Less:
Interim dividend paid on 7 March 2014 (8.00)
NAV as at 31 March 2014 after paying
dividends 102.19
The full record of performance can be found on our website,
www.baronsmeadvct2.co.uk.
PORTFOLIO REVIEW
At 31 March 2014, the portfolio comprised 73 companies. In addition, the
Company's investment in Wood Street Microcap gives investment exposure to a
further 40 AIM-traded and fully listed companies, making a total of 113
companies. The direction of travel showing trading and profitability of these
companies is recorded quarterly so that the Board can monitor the health of the
portfolio. At 31 March 2014, 79 per cent. of companies in the portfolio were
progressing steadily or better.
Investment and Divestment Activity
The six months to 31 March 2014 was an exceptional period of realisations from
the unquoted portfolio. Sales of investments realised proceeds £16.9 million
and delivered net capital gains of £6.0 million. New and follow-on investments
in four unquoted and eight AIM companies totalled £5.3 million. This activity
has seen a significant renewal of assets in the unquoted portfolio with the
full realisation of six investments and the addition of three new unquoted
companies.
Full details regarding the investments and divestments during the period are
set out in the tables below.
Long Term Performance
The Company's investment objective continues to be focused on companies with
strong growth prospects and with the potential to produce consistent returns
for shareholders over the long-term. To achieve this the Manager is now working
to help the Company's newer investments achieve their ambitious targets for
growth in future years.
The total return delivered by the Company has increased by 41 per cent. in the
three years to 31 March 2014. This is a reflection of the quality of the
Company's portfolio and the management provided by ISIS. Should this investment
performance continue to the end of the current financial year, the returns to
shareholders should have reached a level at which, after offsetting the
cumulative hurdle rates from earlier years, a performance fee will be payable
to the Manager.
The full record of performance can be found on our website,
www.baronsmeadvct2.co.uk.
SHAREHOLDER MATTERS
Fundraising
On 22 January 2014, the Company issued a prospectus to raise up to £10 million.
I am very pleased to report that the Company's offer was fully subscribed by 11
February 2014, raising £9.7 million net of expenses. On behalf of the Board of
Directors, I would like to thank the 456 existing shareholders and extend a
very warm welcome to the 509 new shareholders who subscribed to this
fundraising.
VCT legislation
New legislation, effective from 6 April 2014, prevents the use of "Enhanced
Share Buy Backs" by VCTs and restricts the availability of upfront VCT income
tax relief if a shareholder sells and re-invests in new shares within a six
month period in the same VCT. Rather than using Enhanced Share Buy Back
arrangements, the Board has always preferred to create an orderly market for
all shareholders through maintaining a narrow share price discount. As a result
this legislation is not expected to have any material impact on the Company.
In addition, legislation is being introduced to prevent VCTs from distributing
reserves created from converted share premium accounts within three years of
new funds being raised. This will apply to new shares issued after 5 April 2014
and is intended to prevent the return of capital to shareholders before profits
are generated from investments. As the Company already has significant
distributable reserves, it is not expected that this legislation will have a
significant impact on the Company although we are waiting to see the final
wording of the legislation.
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 permits Investment Trusts and VCTs to become self-managed for
the purposes of the Directive. The legislation also provides that Alternative
Investment Fund Managers ("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 although for regulatory reasons the Investment
Management Agreement will need to be transferred to ISIS VC LLP which is a
sister partnership of our current Manager, ISIS EP LLP, and is controlled and
managed by the same individuals.
OUTLOOK
The recovery of the UK economy now appears to be more firmly established. This
improvement in the economic environment in which portfolio companies operate is
to be welcomed. However, our focus is on the strengths of the businesses in
which the Company has invested and using the expertise and skill of the Manager
to help them to deliver increasing profits, employment and profitable exits
over the medium to longer term.
The unquoted portfolio has undergone a phase of refreshment following recent
sales. As a result, growth in the value of this portfolio might be expected to
be more modest in the next year or two as the portfolio companies invest in
their capacity to grow. The recent growth in the value of the quoted portfolio
does, though, present an opportunity to realise profits from those investments.
The Company's portfolio diversity and asset mix should help to deliver
consistent returns over differing phases of economic cycles.
Clive Parritt
Chairman
16 May 2014
Summary Investment Portfolio
Investment Classification at 31 March 2014
Sector by value Percentage
Business Services 46%
Technology, Media & Telecommunications ("TMT") 27%
Healthcare & Education 15%
Consumer Markets 12%
Total Assets by value Percentage
AIM, listed, ISDX & collective investment vehicle 48%
Unquoted - loan stock 25%
Net current assets principally cash 21%
Unquoted - equity 6%
Time Investments Held by value Percentage
Less than 1 year 14%
Between 1 and 3 years 26%
Between 3 and 5 years 13%
Greater than 5 years 47%
Table of Investments and Realisations
Investments in the six month period
Book
cost
Company Location Sector Activity £'000
Unquoted
investments
New
CableCom II Somerset TMT* Provider of network solutions 1,250
Networking
Holdings Limited
Carousel Logistics Kent Business Provider of bespoke logistics 955
Limited Services and supply chain solutions
Kingsbridge Gloucestershire Business Independent insurance broker 952
Limited Services
Follow on
Crew Clothing London Consumer Branded clothing retailer 109
Holdings Limited Markets
Total unquoted investments 3,266
AIM-traded investments
New
Scholium Group plc London Rare book and collectibles
Consumer dealer
Markets 450
Everyman Media London Consumer Boutique independent cinema
Group plc Markets chain 392
MartinCo plc Bournemouth Consumer UK letting agency franchise
Markets network 343
Daily Internet plc Stockport TMT* SME Domain registration &
hosting 250
EG Solutions plc Staffordshire TMT* Back office optimisation
Loan note software 33
Follow on
Sanderson Group plc Coventry TMT* Retail and manufacturing IT 225
Plastics Capital London Business Specialist plastic products 189
plc Services
Tasty plc London Consumer Restaurant chain 126
Markets
Total AIM-traded investments 2,008
Total investments in the period 5,274
* Technology, Media & Telecommunications ("TMT").
Realisations in the six month period
30
September Overall
First 2013 Proceeds multiple
investment valuation ‡ return
Company date £'000 £'000 *
Unquoted realisations
CableCom Networking Full trade
Holdings Limited sale May 07 5,447 5,748 4.8
Full trade
CSC (World) Limited# sale Jan 08 2,838 3,115 2.4
Full trade
Kafevend Holdings Limited sale Oct 05 2,569 2,430 2.5
Inspired Thinking Group Full trade
Limited sale May 10 1,837 2,315 3.4
Arcas Investments Limited Dissolved Sep 11 1,000 998 1.0
Full trade
Empire World Trade Limited sale Aug 06 0 25 0.0
Total unquoted
realisations 13,691 14,631
AIM-traded realisations
Staffline Group plc Market sale Jul 00 1,285 1,682 8.4
PROACTIS Holdings plc Full market May 06 409 621 1.0
sale
Zattikka plc Write off Apr 12 0 0 0.0
Total AIM-traded realisations 1,694 2,303
Total realisations in the period 15,385 16,934†
‡ 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.
# Deferred consideration of £57,000 was also received in respect of CSC (World)
Limited.
† Proceeds of £14,000 were also received in respect of Quantix Limited, which
had been sold in a prior period.
Responsibility statement of the Directors in respect of the half-yearly
financial report
We confirm that to the best of our knowledge:
● the condensed set of financial statements has been prepared in accordance
with the Statement 'Half-yearly financial reports' issued by the UK Accounting
Standards Board;
● the Chairman's Statement (constituting the interim management report)
includes a fair review of the information required by DTR 4.2.7R of the
Disclosure and Transparency Rules, being an indication of important events that
have occurred during the first six months of the financial year and their
impact on the condensed set of financial statements;
● the Statement of Principal Risks and Uncertainties below is a fair review of
the information required by DTR 4.2.7R; and
● the financial statements include a fair review of the information required by
DTR 4.2.8R of the Disclosure and Transparency Rules, being related party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or
performance of the entity during that period; and any changes in the related
party transactions described in the last annual report that could do so.
By Order of the Board,
Clive Parritt
Chairman
16 May 2014
Unaudited Income Statement
For the six months to 31 March 2014
Six months to 31 March Six months to 31 March Year to 30 September
2014 2013 2013*
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Unrealised gains on movements in fair
value - 8,383 8,383 - 6,998 6,998 - 8,678 8,678 of investments
Realised (losses)/gains on disposal of - (963) (963) - 929 929 - 1,535 1,535
investments
Income 1,527 - 1,527 952 - 952 - 3,456 3,456
Other expenses (242) - (242) (229) - (229) (435) - (435)
Profit on ordinary activities before 1,100 6,222 7,322 537 6,458 6,995 2,653 7,672 10,325
taxation
Taxation on ordinary activities (177) 177 - (74) 74 - (505) 505 -
Profit on ordinary activities after 923 6,399 7,322 463 6,532 6,995 2,148 8,177 10,325
taxation
Return per ordinary share:
Basic 1.21p 8.40p 9.61p 0.63p 8.87p 9.50p 2.89p 10.99p 13.88p
* Figures as at 30 September 2013 are audited.
Unaudited Reconciliation of Movement in Shareholders' Funds
For the six months to 31 March 2014
Six Six
months to Months to Year to
31 March 31 March 30 September
2014 2013 2013*
£'000 £'000 £'000
Opening shareholders' funds 75,789 72,433 72,433
Profit on ordinary activities after 7,322 6,995 10,325
taxation
Net proceeds of share issues & 9,409 3,756 3,944
buybacks
Other costs charged to capital - - (5)
Dividends paid (6,017) (3,772) (10,908)
Closing shareholders' funds 86,503 79,412 75,789
* Figures as at 30 September 2013 are audited.
Notes
1. The unaudited interim results which cover the six months to 31 March 2014
have been prepared in accordance with applicable accounting standards and
adopted the accounting policies set out in the statutory accounts of the
Company for the year to 30 September 2013.
2. Return per share is based on a weighted average of 76,201,217 ordinary
shares in issue (30 September 2013 - 74,397,698 ordinary shares, 31 March 2013
-73,664,418 ordinary shares).
3. Earnings for the six months to 31 March 2014 should not be taken as a guide
to the results of the full financial year to 30 September 2014.
4. During the six months to 31 March 2014 the Company purchased 300,000
ordinary shares to be held in treasury at a cost of £289,000. At 31 March 2014
the Company holds 10,323,819 ordinary shares in treasury. These shares may be
re-issued below Net Asset Value as long as the discount at issue is narrower
than the average discount at which the shares were bought back.
5. Excluding treasury shares, there were 84,648,313 ordinary shares in issue at
31 March 2014 (30 September 2013 - 75,314,950 ordinary shares, 31 March 2013 -
75,114,950 ordinary shares).
6. The interim dividend of 8.0p per share (1.2p revenue and 6.8p capital) was
paid on 7 March 2014 to shareholders on the register on 21 February 2014. The
ex-dividend date was 19 February 2014.
7. The financial information contained in this half-yearly financial report
does not constitute statutory accounts as defined in section 434 of the
Companies Act 2006. The information for the year to 30 September 2013 has been
extracted from the latest published audited financial statements. The audited
financial statements for the year to 30 September 2013, which were unqualified,
have been filed with the Registrar of Companies. No statutory accounts in
respect of any period after 30 September 2013 have been reported on by the
Company's auditors or delivered to the Registrar of Companies.
8. Copies of the half-yearly financial report have been made available to
shareholders and are available from the Registered Office of the Company at 100
Wood Street, London EC2V 7AN.
Unaudited Balance Sheet
As at 31 March 2014
As at As at As at
31 31 30
March March September
2014 2013 2013*
£'000 £'000 £'000
Fixed assets
Unquoted investments 26,363 38,859 36,485
Traded on AIM 30,928 23,756 24,994
Traded on ISDX 511 - 346
Listed on LSE 2,454 1,603 1,901
Collective investment vehicle - Wood Street Microcap 7,883 5,092 6,140
Investment Fund
Listed interest bearing securities - 5,619 2,999
Investments 68,139 74,929 72,865
Current assets
Debtors 3,580 1,820 1,965
Cash at bank and on deposit 16,101 9,408 2,875
19,681 11,228 4,840
Creditors (amounts falling due within one year) (1,317) (6,745) (1,916)
Net current assets 18,364 4,483 2,924
Net assets 86,503 79,412 75,789
Capital and reserves
Called-up share capital 9,497 8,534 8,534
Share premium 16,545 7,809 7,809
Capital reserve 41,591 44,947 41,921
Revaluation reserve 18,598 17,415 17,274
Revenue reserve 272 707 251
Equity shareholders' funds 86,503 79,412 75,789
* Figures as at 30 September 2013 are audited.
As at As at As at
31 March 31 March 30 September
2014 2013 2013*
Net asset value per share 102.19p 105.72p 100.63p
Number of shares in circulation 84,648,313 75,114,950 75,314,950
Treasury net asset value per share 101.49p 104.98p 99.88p
Number of ordinary shares in 84,648,313 75,114,950 75,314,950
circulation
Number of ordinary shares held in 10,323,819 10,223,819
treasury 10,023,819
Number of listed ordinary shares in 94,972,132 85,338,769 85,338,769
issue
* Figures as at 30 September 2013 are audited.
Unaudited Cash Flow Statement
For the six months to 31 March 2014
Six Six Year
months months to
to to 30 September
31 March 31 March
2014 2013 2013*
£'000 £'000 £'000
Net cash (outflow)/inflow from operating activities (404) (2) 868
Net cash inflow from financial investment 10,046 6,488 5,511
Equity dividends paid (6,017) (3,772) (10,908)
Net cash inflow/(outflow) before financing 3,625 2,714 (4,529)
Net cash inflow from financing 9,601 3,229 3,939
Increase/(decrease) in cash 13,226 5,943 (590)
Reconciliation of net cash flow to movement in net
cash
Increase/(decrease) in cash 13,226 5,943 (590)
Opening cash position 2,875 3,465 3,465
Closing cash at bank and on deposit 16,101 9,408 2,875
Reconciliation of profit on ordinary activities before taxation
(to net cash outflow from operating activities)
Profit on ordinary activities before taxation 7,322 6,995 10,325
Gains on investments (7,420) (7,927) (10,213)
Changes in working capital and other non-cash items (306) 930 756
Net cash (outflow)/inflow from operating activities (404) (2) 868
* Figures as at 30 September 2013 are audited.
Principal Risks and Uncertainties
The Company's assets consist of equity and fixed interest investments, cash and
liquid resources. Its principal risks are therefore market risk, credit risk
and liquidity risk. Other risks faced by the Company include economic, loss of
approval as a Venture Capital Trust, investment and strategic, regulatory,
reputational, operational and financial risks. These risks, and the way in
which they are managed, are described in more detail under the heading
Principal risks, risk management and regulatory environment within the Other
Matters section in the Company's Annual Report and Accounts for the year to 30
September 2013. The Company's principal risks and uncertainties have not
changed materially since the date of that report.
Related Parties
ISIS EP LLP ('the Manager') manages the investments of the Company. The Manager
also provides or procures the provision of secretarial, administrative and
custodian services to the Company. Under the management agreement, the Manager
receives a fee of 2.0 per cent per annum of the net assets of the Company. This
is described in more detail under the heading Management within the Report of
the Directors in the Company's Annual Report and Accounts for the year to 30
September 2013. During the period the Company has incurred management fees of £
740,000 and secretarial fees of £65,000 payable to the Manager. A performance
fee of £643,000 has been accrued at 31 March 2014 to reflect the potential fee
that would be payable to the Manager at 30 September 2014 should the current
investment performance continue to the end of the current financial year.
Going Concern
After making enquires, and bearing in mind the nature of the Company's business
and assets, the Directors consider that the Company has adequate resources to
continue in operational existence for the foreseeable future. In arriving at
this conclusion the Directors have considered the liquidity of the Company and
its ability to meet obligations as they fall due for a period of at least
twelve months from the date that these financial statements were approved. As
at 31 March 2014 the Company held cash balances of £16,101,000. Cash flow
projections have been reviewed and show that the Company has sufficient funds
to meet both its contracted expenditure and its discretionary cash outflows in
the form of the share buyback programme and dividend policy. The Company has no
external loan finance in place and therefore is not exposed to any gearing
covenants.
Corporate Information
Directors Registrar and Transfer
Office
Clive Anthony Parritt (Chairman) Computershare Investor
Services PLC
Gillian Nott OBE‡ The Pavilions
Howard Goldring* Bridgwater Road
Christina McComb Bristol BS99 6ZZ
Tel: 0870 889 3249
Secretary
ISIS EP LLP Brokers
Panmure Gordon & Co
Registered Office One New Change
100 Wood Street London
London EC2V 7AN EC4M 9AF
Tel: 020 7886 2500
Investment Manager
ISIS EP LLP Auditors
100 Wood Street KPMG LLP
London EC2V 7AN Saltire Court
020 7506 5717 20 Castle Terrace
Edinburgh EH1 2EG
ISIS VC LLP (liquid assets only)
100 Wood Street Solicitors
London EC2V 7AN SGH Martineau LLP
No 1 Colmore Square
Registered Number Birmingham B4 6AA
03504214
VCT Status Adviser
PricewaterhouseCoopers
LLP
1 Embankment Place
London WC2N 6RH
* Chairman of the Audit Committee Website
‡ Chairman of the Management Engagement and www.baronsmeadvct2.co.uk
Remuneration Committee, Chairman of the Nomination
Committee and Senior Independent Director.
National Storage Mechanism
A copy of the Half-Yearly Report 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
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 2 : Half-yearly Report
May 16, 2014 at 12:16 pm EDT
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