Annual Financial Report
Baronsmead VCT 3 plc
Annual Financial Report Announcement
18 February 2010
Investment Objective
Baronsmead VCT 3 is a tax efficient listed company which aims to achieve
long-term investment returns for private investors.
Audited Annual Financial Report Announcement -
Year ended 31 December 2009
Baronsmead VCT 3 plc
Financial Headlines
6.9% NAV per ordinary share increased 6.9% to 105.0p before deduction of
dividends.
7.5p Dividends for the year totalled 7.5p per share comprising two interim
dividends of 3p and 4.5p paid during the year, tax free for qualifying
shareholders.
48.3p Cumulative tax free dividends total 48.3p per share for founder
shareholders since launch in 2001, equivalent to an annual average
dividend of 5.4p per share. The average annual dividend over the last
five years has been 6.9p per share.
159.9p NAV total return to ordinary shareholders for every 100p invested since
launch.
8.7% Based on the 7.5p dividends paid in the year and the mid share price of
86.25p at year end shareholders have received a tax free return of 8.7%
for qualifying shareholders (the gross equivalent yield for a higher
rate tax payer is 12.9%).
Chairman's Statement
The year to 31 December 2009 has seen a resumption of positive investment
returns amounting to a 6.9 per cent increase in Net Asset Value per share. The
unquoted investees have shown good resilience while there has been a strong
recovery in many of the share prices of our AIM portfolio. The unchanged 7.5p
dividend per share paid in the year has been largely paid out of reserves
generated during this period.
I am delighted to welcome Anthony Townsend as the second Chairman of Baronsmead
VCT 3 on my retirement at the close of the Company's AGM. For most of the last
nine years, the Company's performance has consistently been top quartile. There
have been a number of profitable realisations that have enabled us to generate
significant dividends since launch. With the portfolio in good shape, I believe
the Company is well positioned to take advantage of improving market
conditions.
INVESTMENT PERFORMANCE
Results to 31 December 2009
In the twelve months to 31 December 2009, the Net Asset Value (NAV) per share
increased 6.9 per cent from 98.22p to 105.00p before the dividend payments. The
position can be summarised as follows:
NAV at 1 January 2009 98.22*
Valuation uplift 6.78
105.00
Interim dividend paid on 7 September 2009 (3.00)
Interim dividend paid on 30 December 2009 (4.50)
NAV at 31 December 2009 97.50
*Adjusted for 4.5p 2008 final dividend for comparative purposes.
The 6.9 per cent growth in NAV per share over the year was generated by a 4 per
cent increase in the value of the unquoted portfolio and an increase in the
value of the AIM portfolio of 33 per cent. The FTSE All-Share Index increased
30.1 per cent over the same 12 month period. The positive direction of NAV per
share started in March 2009 and has steadily increased since then.
At the period end, over 70 per cent of the capital raised prior to 31 December
2007 was invested in VCT qualifying investments and the 5 other VCT qualifying
tests had also been met throughout the year.
Long term performance
The Company's Investment Objective emphasises the longer term performance of
the Company. This is also consistent with our understanding of shareholders
investment horizons. The Board reviews the long term performance of the Company
using a number of different metrics, but takes particular account of total
dividends paid to shareholders as well as NAV and Share Price total returns.
The second interim dividend took the cumulative dividends paid (tax free to
qualifying shareholders) to founder shareholders to 48.3p per share. This is an
average annual dividend throughout the life of the Company of 5.4p per year.
There have been two prospectus fund raisings by Baronsmead VCT 3 excluding the
current Joint Offer with Baronsmead VCT 4. Shareholders from these prior
offers have to date achieved positive absolute NAV returns. The performance
since launch to December 2009 puts Baronsmead VCT 3 in the top quartile of
other Generalist VCTs launched in the same tax year. Fuller comparisons have
recently been provided by the Association of Investment Companies (AIC) who
publish monthly data on their website, www.theaic.co.uk.
The returns to shareholders are significantly enhanced by the tax benefits
available to VCT investors. At a time of lower and sometimes negative
investment returns, the proportional benefit from these taxation reliefs is
greater.
PORTFOLIO
The valuation guidelines for unquoted companies have been revised by the
International Private Equity and Venture Capital Valuation Board to facilitate
compliance with International, US and UK accounting standards. The Board has
applied the new guidelines having been satisfied that these provide an improved
framework for estimating market value. In valuing the unquoted investments the
Board has available to it a significant amount of information for comparison
purposes including earnings multiples of recent transactions, P/Es of
comparable quoted companies and FTSE sectors, all suitably adjusted for size,
liquidity, gearing, growth prospects and business mix. AIM investments continue
to be valued at bid price.
ScriptSwitch was sold in October 2009 at almost four times the initial cost of
the investment made in May 2007 while the unquoted investment in Green Issues
was realised at zero value. Seven AIM investments were realised (but shares
retained in two of the purchasers) and another six written off. Those companies
which were sold in 2009 had increased in value by £1.4 million since 31
December 2008, split almost equally between ScriptSwitch and those realised
from the AIM portfolio. Three new AIM investments were made and as a result the
overall portfolio of quoted investments reduced in number to 45 companies
during the year.
48 per cent of the net asset value of £52.9 million was invested in unquoted
companies, 23 per cent in AIM, listed and collective investment vehicles and
the balance of 29 per cent remained in liquid assets or government securities.
The largest unquoted investment, Reed & Mackay, and the largest AIM investment,
IDOX plc, represented 5.9 and 2.2 per cent of Net Asset Value respectively.
Unquoted portfolio
The performance of the unquoted portfolio has been robust and its valuation has
increased by 4 per cent. This validates the quality of the portfolio and the
effectiveness of close cooperation and active Manager involvement with the
investee companies.
On average, the current portfolio of unquoted investments is valued at some 22
per cent higher than original cost. 13 companies are valued at higher than
cost and 5 are valued below cost.
AIM-traded portfolio
The AIM portion of the portfolio has improved 33 per cent over the last 12
months recovering a good part of the previous year's falls. In the second half
of the year five of the investee companies were sold outright confirming that
acquirers could still appreciate the good value that resided in these
relatively lowly rated situations. This also supports the longer term strategy
of taking more influential stakes in a smaller number of AIM investments, where
a likely exit strategy to a trade buyer can be envisaged.
Non-Qualifying AIM and Small Cap Investments
The Company has invested a very small proportion of its assets in non-VCT
qualifying AIM and Small Cap companies in order to take advantage of investment
opportunities that the Manager identifies in this area. These investments are
now arranged through a collective investment vehicle set up and managed by the
Manager in order to provide the Baronsmead VCT Boards with greater flexibility
to choose and vary their respective Company's allocation to this area of
investing. This investment is referred to in the portfolio and the various
notes to the accounts as Wood Street Microcap Investment Fund and during the
year Baronsmead VCT 3 invested £525,000 (approximately 1 per cent of the
Company's NAV) in this vehicle. The Manager receives no additional fee for
managing the Company's investments in this way.
UK economic impact from VCT investment
VCT tax reliefs encourage private investors to invest in UK growth companies
that mainly require £2 million to £10 million of risk capital.
The return on this investment in tax reliefs can be gauged by the subsequent
growth of the investee companies, many of which since our launch in 2001 have
grown successfully during our period of ownership. The number of employees
across the investee companies acquired since April 2004 within the unquoted
portfolio of the Baronsmead VCTs increased from 1,995 to 3,077 from the date of
initial investment as stated in their latest audited accounts.
PROSPECTS FOR NEW INVESTMENT
The market for investing in new transactions has been depressed over the last
12 months with overall M&A volumes down significantly although eight follow on
investments were completed during the year under review. The quality of new
unquoted proposals is improving as confidence begins to return to the market.
Additionally the Manager has an active programme of directly approaching
prospective investee companies in selected sectors, and this is building a
strong pipeline of entrepreneurs who would like to work with the Manager when
the timing is right. This continues to be a significant investment for the
future.
The volume of qualifying AIM opportunities has increased markedly although
conversion rates have, so far, remained low as the Manager continues to
maintain a high quality threshold for new investments. Prospects for the AIM
market generally have been at a low ebb but are now improving as recent
research is increasingly recognising that the AIM market plays an important
role for venture backed companies as they transition into more mature companies
through an IPO.
SHAREHOLDER ISSUES
Joint offer prospectus launched in January 2010
Shareholders gave the Board authority at the annual general meeting held on 18
March 2009 to issue up to 13 million ordinary shares, by way of a Joint Offer.
The Securities Note for a Joint Offer in conjunction with Baronsmead VCT 4 was
sent to all Shareholders in January 2010 and aims to raise up to £8 million
for each of Baronsmead VCT 3 and Baronsmead VCT 4. The final closing date is 1
April 2010 but the Directors reserve the right to extend the Joint Offer beyond
this date.
One of the key messages in the Securities Note is "the Directors and Manager
believe that it is an advantageous time in the economic cycle, when prices of
assets are expected to be attractive, to raise capital to enable the Companies
to continue making investments in accordance with their investment strategies".
The Directors of Baronsmead VCT 3 already hold over a quarter of a million
shares in the Company and have agreed to subscribe at least another £45,000 for
further shares as part of the Joint Offer with Baronsmead VCT 4 plc.
Company brokers
The Company's former broker, Teathers, ceased to operate as a market maker
during March 2009. However, several other firms became market makers during
that month thereby minimising the impact this could have had on the discount to
NAV at which the Company's shares were traded. Currently the Company's shares
have three market makers, namely Matrix Corporate Capital, Winterflood and
Singer Capital Markets.
Following a review of brokers the Board agreed to appoint Matrix Corporate
Capital as the new broker to the Company from the beginning of August 2009.
Their specialist knowledge of the VCT sector enables the bid - offer spread to
remain narrow at around 2p to 3p per share rather than the much wider spreads
typical for similarly sized quoted public companies.
Buy backs and market discounts
During the 12 months to 31 December 2009, 0.9 million shares were bought back
(all between March and May 2009). This was a peak time as the 24.0m ordinary
shares, issued originally as C shares in 2005/2006, reached their third year
anniversary. Since then most of the shares that have come up for sale have been
acquired as part of the Dividend Reinvestment Plan, totalling 702,000 shares in
the second half of the year. The average market price discount to NAV was
around 10 per cent over the year which compares favourably to the rest of the
VCT sector where discounts to NAV were generally higher.
Finance Act 2009 and Pre-Budget Report 2009
Following the changes announced in the 2009 Budget and implemented in the
Finance Act 2009, for those individuals earning in excess of £150,000 annually,
restrictions have been introduced which curb both the level of contributions
and the amount of tax relief available on those contributions made into a
pension scheme with effect from 6 April 2011. Further restrictions have been
introduced for this tax year and next, known as "anti-forestalling measures"
which prevent many individuals investing large sums into their pension schemes
ahead of the changes coming into force.
As a result, VCTs may now represent an attractive supplement to traditional
pension planning for people affected by these changes and others seeking to
implement their retirement planning options and tax efficient investing
generally. Investors should consult their financial advisers about how these
changes might affect them and whether or not investing in VCTs is suitable for
them, taking into account their personal circumstances.
The Pre-Budget Report announced a consultation process on a number of changes
to conclude the EU's State Aid approval conditions and refine the targeting of
tax relief. The Manager is actively engaged with industry bodies in the
consultation process.
BOARD SUCCESSION
Last year I alerted shareholders to the review being carried out by Andrew
Karney, the Senior Independent Director, regarding Board Succession as the
current Board had been in post since our inception in January 2001. As a result
Anthony Townsend joined the Board in August 2009 and I am now very pleased that
he has accepted the Board's invitation to take on the Chairman's role. He is an
experienced Chairman and has in depth experience of both investment banking and
fund management. The latter includes much knowledge of investment trusts and he
has previously been chairman of the AIC (formerly the Association of Investment
Trust Companies).
It is rewarding for me to see the progress of Baronsmead VCT 3 since 2001. Our
total return performance places us among the top quartile in the VCT sector and
compares favourably against larger investment trusts in Private Equity. Much of
this return comes from the unquoted portfolio and from the profitable sale of
investments, distributions of net capital realisations amounted to 30p per
share (out of the 48.3p total paid out) over this period. This performance is a
testament to sticking to our investment policies through the previous stock
market low of March 2003 and now the current global financial crisis.
This has been achieved in part because of a strong focus on risk management.
Good diversity in the portfolio has been paramount as evidenced by 64 holdings
in the present portfolio.
ANNUAL GENERAL MEETING
I look forward to meeting as many shareholders as possible at our Annual
General Meeting at 10.30 am on Tuesday 18 May 2010 to be held at the London
Stock Exchange, 10 Paternoster Square near St Paul's Cathedral. The AGM will
be followed by presentations from the Manager and an investee company, a light
lunch and shareholder workshop.
OUTLOOK
Equity markets have rallied in recent months anticipating that the pace of
decline in the UK economy over the past 12 months has slowed and perhaps
stabilised. There can be little doubt that the finances of the consumer will
come under considerable pressure but whilst remaining cautious, the Board and
Manager share the belief that once greater stability has returned to UK
financial and industrial markets your Company is well placed to capitalise on a
more favourable investment environment.
The Directors believe that the new capital being raised in this quarter is an
attractive opportunity for both existing and new shareholders, providing
further balance sheet strength and flexibility for Baronsmead VCT 3 to sustain
investment in smaller UK growth companies.
We continue to monitor developments in relation to the proposed EU Directive on
Alternative Investment Fund Managers (AIFM) which may impose restrictions on
the Manager and/or the Company over the manner in which investments are made
and funds raised. The Directive is currently in a consultation phase that
encompasses both the EU Council and Parliament and the Company and Manager are
supporting the AIC and BVCA in their representation to this process.
Mark Cannon Brookes
Chairman
18 February 2010
Manager's Review
We have worked closely with the companies in the unquoted portfolio to ensure
their stability and to position them advantageously as the economic climate
improves. Trading across the portfolio has generally improved.
Investment opportunities for both potential and existing AIM companies of the
right quality are evident. Management teams in unquoted companies are also
gaining confidence to partner with us in fulfilling their growth ambitions.
PORTFOLIO REVIEW
The total portfolio comprised 64 investee companies at the year end after seven
realisations and seven write offs. For those AIM-traded companies that have
been written off, they had largely been revalued at low share prices in prior
years and so the decrease in value this year was limited to £0.3 million,
approximately 0.5p NAV per share. Cash proceeds from all realisations totalled
£6.0 million, including £3.5 million from the sale of ScriptSwitch.
Three new investments were made in Clarity Commerce Solutions, Green Compliance
and Marwyn Value Investors, all AIM-traded companies. Further investments were
made in existing investees amounting to £0.9 million. The shareholding in
Inverness Medical, a NYSE listed company, was taken in exchange for selling our
holding in Concateno and we also received shares in Chime Communications for
our holding in Essentially Group.
All new investment and realisations are scheduled below.
Portfolio companies are reviewed quarterly in terms of their financial health
and in the last two quarters, those exhibiting steady or better trading
progress have improved to 84 per cent. In part this has come from focusing on
robust business models where growth strategies are less dependent on overall
economic growth and more on the competitive advantage in delivering superior
value to their end customers.
ScriptSwitch was sold to a US trade buyer in the healthcare market, resulting
in a return, including expected escrow payments, approaching 4.0 times the cost
of the initial investment made in May 2007. It had grown rapidly due to the
demand for its unique prescribing software in reducing cost within Primary Care
Trusts' drug budgets. More than 115 NHS Primary Care Organisations have
benefited from their prescribing decision support estimated to presently save £
1.2 million per month. The CEO, Mike Washburn, became the BVCA `Venture Capital
backed CEO of the year' in October 2009.
Unquoted portfolio management
ScriptSwitch and three other case studies of unquoted companies from different
sectors within the portfolio are set out on pages 14 and 15 of the Annual
Report. These are the same four companies that were profiled last year and the
intention this year has been to show how the Manager has worked with the
management teams to prepare each business for the more difficult trading
conditions that they would experience.
For example, the financial structures adopted in the unquoted portfolio have
been designed to be prudent wherever possible with relatively low levels of
external debt. There are several ways of measuring borrowings but the most
common relates to the level of net borrowings divided by annual operating
profits defined as EBITDA - earnings before interest, tax, depreciation and
amortisation. At an average ratio of 1.7 times across the unquoted portfolio,
the level of debt within the portfolio as a whole is relatively low and
considerably less than those typically used in larger private equity
transactions.
The Manager is also actively involved in assisting investee companies maintain
tight control of overheads, focusing on efficient working capital management
and ensuring early communication with each investee company's banks to help
manage risk and minimise issues. Presentations by investee companies at each
AGM have illustrated the close relationship between the executive management of
unquoted companies and the Manager.
Nexus is a good example of a growth company operating in the relatively mature
UK car and van rental market. After the initial investment in early 2008, we
encouraged the acquisition of a competitor partly financed by further
investment from the Baronsmead VCTs later last year. As a broker, Nexus
provides a comprehensive procurement service for corporate users, which
delivers access to a huge range of rental suppliers and vehicles from a single
ordering point. At the heart of the business is an innovative internet based
system that offers these extensive capabilities cost effectively.
The two rounds of investment in Nexus cost £1.9 million and have been valued at
£2.5 million as at 31 December 2009.
AIM investment
The sentiment towards the AIM market has materially improved during the year
and this confidence can be seen in several ways. A series of satisfactory trade
sales occurred in the second half of the year as well as trade buyers taking
strategic stakes in a number of investees as they perceive greater value. There
is also greater demand currently for potential AIM floats (IPOs) where the
companies believe that capital raised from AIM can satisfy their growth
aspirations.
During the year, further investment was made in six AIM companies where we
perceived good value and wished to be supportive of their growth plans. Most of
these companies endeavour to dominate their specialist market niche and we
believe can then become attractive takeover targets with greater critical mass.
The portfolio as a whole was 33 per cent higher over the year.
Our strategy for investing in AIM-Traded companies is to use private equity
disciplines where possible and focus on holdings where the Manager can be an
influential shareholder. This approach means that the portfolio will become
more concentrated and already the tail of smaller investments has been
shortened with a number of write offs and sales. Some of these investments,
however, may be retained over the medium term as they still contribute
significantly to the 70 per cent VCT qualifying test even though they have a
relatively low market value.
OUTLOOK
The last year has been a time for entrepreneurial companies to be focused on
running a tight operation and ensuring they can control their destiny despite
the difficulties of the banking market. This has largely been achieved across
the portfolio. The improving economic climate is now there for these companies
to grow both market share and profits. It will be the continued innovation and
drive of these companies aided by the support of experienced and active
investors like ISIS that can create value for the shareholders in Baronsmead
VCT 3.
ISIS EP LLP
Investment Manager
18 February 2010
NEW INVESTMENTS IN THE YEAR TO 31 DECEMBER 2009
Company Locations Sectors Activity Investment
(£'000)
AIM-traded and listed
investments
New
Clarity Commerce Basingstoke IT & Media Software for leisure 50
Solutions plc industry
Green Compliance plc Cirencester Business Blue collar compliance 250
Services
Marwyn Value Investors London Financial Investment fund 64
plc Services
Follow on
Adventis Group plc London IT & Media Marketing services 82
agency
Electric Word plc London IT & Media Business to business 237
publisher
Ffastfill plc Sevenoaks IT & Media Trading platform 140
software provider
IDOX plc London IT & Media Public sector software 118
and services
Kiotech International Surrey Healthcare Animal feed additives 75
plc &
education
WIN plc High IT & Media Text messaging services 150
Wycombe
Paper consideration
Inverness Medical Inc* USA Healthcare Developer of health 180
& management programmes
Education
Chime Communications London IT & Media Marketing services 369
Group plc†agency
Total AIM-traded and 1,535
listed investments
Unquoted investments
Follow on
Occam DM Ltd Bath IT & Media Integrated data 8
services
Xention Discovery Cambridge Healthcare Developer of ion 90
& channel modulating
education drugs
Total Unquoted 98
investments
Collective investment
vehicle
New
Wood Street Microcap 525
Investment Fund
Total Collective 525
investment vehicle
Total Investments in 2,158
the period
* Paper consideration from sale of Concateno plc traded on New York Stock
Exchange
†Paper consideration from sale of Essentially Ltd
REALISATIONS IN THE YEAR TO 31 DECEMBER 2009
Value at Realised
First 31 Decem profit/ Overall
ber (loss)
investment 2008 Proceeds this Multiple
period
Company date £'000 £'000 £'000 return*
AIM-traded
realisations
Claimar Care Group Trade Jan 06 59 271 211 0.5
plc sale
Concateno plc Trade Oct 06 394 525 131 1.3
sale
Craneware plc Part sale Sep 07 174 185 11 1.7
Electric Word plc Part sale Mar 08 9 12 3 0.7
Essentially Group Trade Jun 07 189 369 180 0.7
Ltd sale
Ffastfill plc Part sale Jun 07 166 360 193 1.6
Independent Media Market Mar 08 9 13 4 0.9
Distribution plc sale
MBL Group plc Market Jan 03 195 382 187 0.7
sale
Research Now plc Market Dec 07 227 376 149 1.4
sale
Silverdell plc Market May 08 2 1 (1) 0.1
sale
1,424 2,494 1,068
Written off
EBTM plc May 07 51 - (51) -
Fishworks plc Jun 05 15 - (15) -
IPT Holdings plc Nov 04 4 - (4) 0.9
MKM Group plc May 04 5 - (5) -
Optimisa plc Oct 07 28 - (28) -
Relax Group plc Feb 08 198 - (198) -
301 - (301)
Total AIM-traded 1,725 2,494 767
realisations
Unquoted
realisations
Green Issues Written Dec 05 - - - -
off
ScriptSwitch Trade May 07 2,806 3,509 703 3.7
sale
Total Unquoted 2,806 3,509 703^
realisations
Total Realisations 4,531 6,003 1,470
*Includes interest/dividends received, loan note redemptions and partial
realisations accounted for in prior periods.
^Before deferred proceeds of £27,000 were received for Language Line.
The Disclosure and Transparency Rules ("DTR") of the UK Listing Authority
require certain disclosures in relation to the annual financial report, as
follows:
Principal risks, risk management and regulatory environment
The Board believes that the principal risks faced by the Company are:
-Economic risk - events such as an economic recession and movement in interest
rates could affect smaller companies valuations.
-Loss of approval as a Venture Capital Trust - the Company must comply with
Section 274 of the Income Tax Act 2007 which allows it to be exempted from
capital gains tax on investment 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 - inappropriate strategy, poor asset allocation or
consistent weak stock selection might lead to under performance and poor
returns to shareholders.
-Regulatory - the Company is required to comply with the Companies Act, 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.
-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 - inadequate controls might lead to misappropriation of assets.
Inappropriate accounting policies might lead to misreporting or breaches of
regulations.
-Market Risk - Investment in Listed, AIM-traded, PLUS-traded and unquoted
companies, by its nature, involves a higher degree of risk than investment in
companies traded on the main market. In particular, smaller companies often
have limited product lines, markets or financial resources and may be dependent
for their management on a smaller number of key individuals. In addition, the
market for stock in smaller companies is often less liquid than that for stock
in larger companies, bringing with it potential difficulties in acquiring,
valuing and disposing of such stock.
-Liquidity Risk - The Company's investments may be difficult to realise. The
fact that a share is traded on AIM does not guarantee its liquidity. The spread
between the buying and selling price of such shares may be wide and thus the
price used for valuation may not be achievable.
-Competitive Risk - Retention of key personnel 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 policies, regular
reviews 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 Turnbull guidance.
Statement of Directors' Responsibilities in respect of the Annual Report and
the Financial Statements
The Directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each
financial year. Under that law they have elected to prepare the financial
statements in accordance with UK Accounting Standards.
The financial statements are required by law to give a true and fair view of
the state of affairs of the Company and of the profit or loss of the Company
for that period.
In preparing these financial statements, the Directors are required to:
•select suitable accounting policies and then apply them consistently;
•make judgments and estimates that are reasonable and prudent;
•state whether applicable UK Accounting Standards 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 proper accounting records that
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that its financial statements comply with the
Companies Act 2006. They have general responsibility for taking such steps as
are reasonably open to them to safeguard the assets of the Company and to
prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Directors' Report (including Business Review), Directors'
Remuneration Report and Corporate Governance Review 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.
Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the annual financial
report
We confirm that to the best of our knowledge:
•the financial statements, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company; and
•the Directors' Report includes a fair review of the development and
performance of the business and the position of the issuer together with a
description of the principal risks and uncertainties that they face.
On behalf of the Board,
Mark Cannon Brookes
Chairman
18 February 2010
Income Statement
For the Year ended 31 December 2009
2009 2008
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Unrealised gains/ - 2,434 2,434 - (8,894) (8,894)
(losses) on investments
Realised gains/(losses) - 1,350 1,350 - (808) (808)
on investments
Income 1,513 - 1,513 2,255 - 2,255
VAT (2) (6) (8) 266 1,038 1,304
Investment management (339) (1,016) (1,355) (405) (1,215) (1,620)
fee
Other expenses (347) - (347) (362) - (362)
Profit/(loss) on 825 2,762 3,587 1,754 (9,879) (8,125)
ordinary activities
before taxation
Taxation on ordinary (167) 167 - (433) 433 -
activities
Profit/(loss) on 658 2,929 3,587 1,321 (9,446) (8,125)
ordinary activities
after taxation
Return per ordinary
share
Basic 1.22p 5.41p 6.63p 2.44p (17.43p) (14.99p)
The `Total' column of this statement is the profit and loss account of the
Company.
All revenue and capital items in this statement derive from continuing
operations.
No operations were acquired or discontinued in the year.
Reconciliation of Movements in Shareholders' Funds
For the Year ended 31 December 2009
2009 2008
Ordinary Ordinary
shares shares
Total Total
£'000 £'000
Opening shareholders' funds 55,136 65,221
Profit/(loss) for the year 3,587 (8,125)
Increase in share capital in issue 1,524 1,118
Purchase of shares for Treasury (821) (1,398)
Dividends paid (6,483)* (1,629)
Expenses of share issue (65) (51)
Closing shareholders' funds 52,878 55,136
* Includes payment of 2008 final dividend.
Balance Sheet
As at 31 December 2009
2009 2008
Total Total
£'000 £'000
Fixed assets
Investments 50,965 51,956
Current assets
Debtors 349 2,000
Cash at bank and on deposit 2,033 1,732
2,382 3,732
Creditors (amounts falling due within one year) (439) (493)
Net current assets 1,943 3,239
Total assets less current liabilities 52,908 55,195
Creditors (amounts falling due after one year) (30) (59)
Net assets 52,878 55,136
Capital and reserves
Called-up share capital 5,970 5,822
Share premium account 8,080 6,768
Capital redemption reserve 10,862 10,862
Revaluation reserve 1,393 (1,765)
Capital reserve 26,271 32,617
Revenue reserve 302 832
Equity shareholders' funds 52,878 55,136
Net asset value per share
- Basic 97.50p 102.72p
- Treasury 96.47p 101.77p
Cash Flow Statement
As at 31 December 2009
2009 2008
Total Total
£'000 £'000
Operating activities
Investment income received 1,302 2,859
VAT income received 1,296 -
Interest received 144 162
Investment management fees (1,371) (1,718)
Other cash payments (416) (352)
Net cash inflow from operating activities 955 951
Capital expenditure and financial investment
Purchases of investments (39,388) (52,079)
Disposals of investments 44,583 50,249
Net cash inflow/(outflow) from capital expenditure and 5,195 (1,830)
financial investment
Dividends
Equity dividends paid (6,483) (1,629)
Net cash outflow before financing (333) (2,508)
Financing
Issue of shares 1,524 1,118
Buy-back of ordinary shares (821) (1,398)
Expenses relating to issue of shares (69) (51)
Net cash inflow/(outflow) from financing 634 (331)
Increase/(decrease) in cash 301 (2,839)
Reconciliation of net cash flow to movement in net cash
Increase/(decrease) in cash 301 (2,839)
Opening cash position 1,732 4,571
Closing cash position 2,033 1,732
Notes
1. The audited results which cover the year ended 31 December 2009 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 ("ACI) in January 2003, revised January 2009 and on the
assumption that the company maintains VCT status.
In order to better reflect the activities of a VCT and in accordance with the
SORP, supplementary information which analyses the income statement between
items of a revenue and capital nature has been presented alongside the income
statement. Profit/(loss) on ordinary activities after taxation is the measure
the Directors believe appropriate in assessing the Company's compliance with
certain requirements set out in Section 274 of the Income Tax Act 2007.
2. There were 59,699,553 ordinary shares listed at 31 December 2009. The
Company holds 5,467,317 ordinary shares in Treasury as at 31 December 2009.
The total number of shares with voting rights at 31 December 2009 was
54,232,236
3. Revenue and capital returns for the ordinary shares for the year to 31
December 2009 are based on a weighted average of 54,121,721 (2008: 54,190,257
ordinary shares) ordinary shares in issue during the year.
4. Income for the year is derived from:
2009 2008
Total £ Total £'000
'000
UK franked 198 235
UK unfranked 1,005 1,655
Redemption premium 168 221
Deposit interest 142 144
1,513 2,255
5. HM Revenue and Customs (HMRC) confirmed in October 2007, following the
European Court of Justice decision in the JPMorgan Claverhouse case, that the
provision of management services to investment trusts is exempt from VAT.
Accordingly ISIS EP LLP ceased to charge VAT on management fees payable by
the Company with effect from 30 June 2008. Following recognition in the
income statement last year of £1,304,000 and subsequent recovery this year of
£1,296,000 the Company does not foresee any further future repayment of VAT.
6. Related party transactions include Management, Secretarial, Accounting and
Performance fees payable to the Manager, ISIS EP LLP, as disclosed in the
notes to the full accounts. In addition, the Manager operates a Co-Investment
scheme, detailed in the Report of the Directors within the full accounts,
whereby employees of the Manager are entitled to participate in certain
unquoted investments alongside the Company.
7. These are not full accounts in terms of Section 434 of the Companies Act
2006. Full audited accounts for the year ending 31 December 2008 have been
lodged with the Registrar of Companies. The annual report for the year ended
31 December 2009 will be sent to shareholders shortly and will then be
available for inspection at 100 Wood Street, London, the registered office of
the Company. The audited accounts for the year ended 31 December 2009
contains an unqualified audit report.
8. The Annual General Meeting will be held on 18 May 2010 at 10:30 am at the
London Stock Exchange, 10 Paternoster Square, London EC4M 7LS.
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