Annual Financial Report

Baronsmead VCT 3 plc Annual Financial Report for the year ended 31 December 2012 The Directors present the Annual Financial Report of the Company for the year ended 31 December 2012. The full Annual Report and Accounts will shortly be available via the Company's website at www.baronsmeadvct3.co.uk. Investment Objective Baronsmead VCT 3 is a tax efficient listed company which aims to achieve long-term investment returns for private investors. Investment policy â— To invest primarily in a diverse portfolio of UK growth businesses, whether unquoted or traded on AIM. â— Investments are made selectively across a range of sectors in companies that have the potential to grow and enhance their value. Full details of the Company's published investment policy and risk management are contained in the Report of the Directors in the Annual Report & Accounts. Dividend policy The Board of Baronsmead VCT 3 has the objective to maintain a minimum annual dividend level of around 4.5p per ordinary share if possible, but this depends primarily on the level of realisations achieved and cannot be guaranteed. 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 proposed final dividend of 4.5p) has been 5.9p per ordinary share (equivalent to a pre-tax return of 7.9p per ordinary share for a higher rate taxpayer). For shareholders who received up front tax reliefs, their returns would have been higher. Shareholder choice The Board wishes to provide shareholders with a number of choices that enable them to utilise their investment in Baronsmead VCT 3 in ways that best suit their personal investment and tax planning and in a way that treats all shareholders equally. â— 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. In December 2012, the Company's offer for subscription raised Â£5.0 million (Â£4.7 million net). â— 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 2012. â— 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. The Board has undertaken a review of this policy and will seek to maintain a mid share price discount of approximately 5 per cent. to net asset value. This constitutes a revision to the Company's previous policy of buying back shares through the market at an approximate 10 per cent. discount to the latest published net asset value. Further details are provided in the Chairman's Statement. In the year to 31 December 2012, 1,306,897 shares were bought back representing 2 per cent. of the shares in issue at 31 December 2012 at an average price which represented a 9 per cent. discount to the latest published net asset value. â— 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 305,000 shares were bought by investors in the Company's existing shares in the year to 31 December 2012. Financial Headlines +14.4% - Net asset value ("NAV") per share increased 14.4 per cent. to 114.6p in the twelve months ended 31 December 2012, before deduction of the interim dividend. 7.5p - Dividends totalled 7.5p for the year to 31 December 2012, including the proposed final dividend of 4.5p. 7.1% - Net annual dividend yield of 7.1 per cent. and gross annual yield of 9.5 per cent. 217.4p - NAV total return to shareholders for every 100.0p invested at launch. Chairman's Statement In the year to 31 December 2012 the Net Asset Value ("NAV") before payment of dividends grew by 14.5p per share representing an increase of 14.4 per cent. A final dividend of 4.5p per share is proposed resulting in total dividends of 7.5p per share for the year which will be paid predominantly out of profits generated from successful portfolio realisations in recent years. INVESTMENT PERFORMANCE The change in NAV per share over the year is summarised in the table below: Pence per ordinary share NAV as at 1 January 2012 100.16 Valuation uplift (14.44 per cent.) 14.46 114.62 Interim dividend paid on 21 September 2012 (3.0) Proposed final dividend of 4.5p, payable after (4.5) shareholder approval, on 15 April 2013 NAV as at 31 December 2012 assuming final dividend 107.12 paid We are pleased with the consistent performance of the portfolio despite the poor economic environment since 2008. For instance, over the past three years the Company's top ten investments as at 31 December 2012, representing 52 per cent. of the portfolio by value, have generated an average annual growth of 17 per cent. in sales and 15 per cent. in profits. The number of jobs created by these portfolio companies has been significant with the top ten investments now employing some 2,500 people, an increase of 22 per cent. over the last year. This helps to validate the wider aims of the VCT legislation which are to assist in generating growth in the UK economy. Overall, our portfolio of 67 companies remains in good health with 85 per cent. demonstrating steady to strong growth. This strong performance has resulted in a steady flow of successful realisations which has enabled the Company to maintain a consistent annual dividend of 7.5p since 2007, which is tax free for qualifying shareholders. This dividend equates to an annual tax free dividend yield of 7.1 per cent. on the mid share price of 105.4 p at 31 December 2012. Over the year, the valuations of the unquoted and AIM portfolios increased by 8 and 38 per cent. respectively. The largest gains came from the AIM investments in IDOX and Independent Living Services Limited, which increased in value by Â£3.12 million and Â£2.03 million respectively as a result of significantly better trading results. LONG TERM PERFORMANCE AND BENEFIT OF THE VCT TAX RELIEFS The Company's policy of investing in a diverse portfolio of established and profitable companies capable of strong growth aims to generate consistent returns over the long term. The NAV total return over the past ten years has been 206.3p for each 100p invested by Baronsmead VCT 3 compared with the sector average of 172.9p for VCT generalists over the same period (source AIC). Assuming the final dividend is approved, founder shareholders will have received dividends totalling 70.8p per share compared to the initial net cost of 80.0p per share, after taking account of the maximum initial VCT income tax relief of 20 per cent. of amounts invested in new VCT shares that was available to qualifying investors in 2001. These dividends are tax free for qualifying investors. SHAREHOLDER CHOICE The Company raised gross proceeds of Â£4.1 million (Â£3.9 million net) in February 2012 by way of a top up share offer. A further offer for subscription by way of a prospectus launched in November 2012 raised its target of Â£5.0 million (Â£4.7 million net) proceeds by 21 December 2012. In deciding how much to raise during 2012 the Directors considered the level of cash that will be required by the Company for investment over the next few years as well as the need to maintain sufficient liquidity to pay dividends and cover annual running costs. Since inception the Board has, as a service to shareholders, maintained a buy back policy of acquiring shares through the market at a discount to NAV of approximately 10 per cent. Each year the level of shares bought back by the Company is relatively low. (For instance in the past three financial years the Company has bought back an annual average of 2 per cent. of the shares in issue at the financial year end). In addition, the results of the shareholder survey carried out in October 2012 confirmed that a significant majority of our shareholders intend to hold their shares for the long term. As a result, in November 2012 the Directors decided that in order to enable those shareholders who do wish to sell their shares to achieve a return closer to net asset value they would in future seek to buy back shares at a 5 per cent. discount to NAV. This should also improve the price of the Company's shares for ongoing shareholders and increase their attractiveness. This discount control policy will be kept under review based on the number of shares bought back over the next 12 months and may therefore be subject to revision. The buying back of shares will depend on market conditions at the time and will only happen when the Directors believe any such purchase would be in the best interests of shareholders as a whole. OUTLOOK As anticipated in my half-yearly report the continued scarcity of bank debt in the UK and concerns regarding the stability of the European Union have resulted in both uncertain and slower growth for the UK economy. Against this unpromising backdrop there has been steady progress across many of our portfolio companies as witnessed by the `top ten' investees showing increases in turnover and profits. The relatively low levels of debt in the companies concerned should ensure that our investments are more resilient if trading conditions continue to be difficult. We therefore view the next year with a mixture of caution and optimism as we continue to believe that good quality companies of the size in which we invest can prosper even in the current tough environment. We are fortunate that the investment manager ISIS has a strong track record of partnering with such companies and has the experience and knowledge to support them along a growth path. ANNUAL GENERAL MEETING I look forward to seeing as many shareholders as possible at our 12th Annual General Meeting which will be held this year on Wednesday 10 April 2013 at the Plaisterers' Hall, One London Wall, EC2Y 5JU at 10:30am. The AGM will be followed by presentations from the Manager and one of our investee companies. Following these presentations we would be delighted if you could join us for a light lunch. Anthony Townsend Chairman 15 February 2013 Manager's Review Considering the ongoing uncertainty during the period under review in the national and European economies, the progress made by the Company's investees is creditable. Overall, the portfolio has performed very well including a number of significant gains by a number of quoted shareholdings. PORTFOLIO REVIEW Overview The net assets of Â£75 million were invested as follows: Asset class NAV % of Number of Annual NAV investees return % Unquoted 37,084,000 50 25 8 Quoted 22,641,000 30 42 38 Wood Street Mircocap 4,525,000 6 33 18 Cash and near cash 10,312,000 14 During the year in total there were; â— New investments of Â£7.2 million in six new companies and eight follow ons; â— Divestments of Â£3.0 million from nine investments and a partial loan note realisation. 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 2012, 85 per cent. of the 67 companies in the portfolio were progressing steadily or better. Unquoted Private Equity The unquoted portfolio has again performed well and there has been a steady increase in unquoted values of 8 per cent. The unquoted portion of the portfolio is valued using a consistent process every three months which the Board oversees and approves. Almost all of the value creation in unquoted investments has come from operational improvements (revenue and margin growth), rather than financial leverage. The sale of TVC to the Economist Group realised Â£1.3 million in March 2012. Quoted (AIM traded and other listed investments) There has also been a significant uplift in the quoted portfolio of 38 per cent. partially reflecting a positive re-rating of the small cap sector in the first quarter of 2012. This recovery has been helpful to the quoted portfolio following several years of headwinds from a challenging AIM market environment and weak share prices. The largest contributor to the uplift in the quoted portfolio was IDOX, a supplier of document management software to the UK local government, and global engineering sectors. The IDOX share price appreciated by 125 per cent. during the period aided by a combination of good organic growth and accretive acquisitions which led to successive earnings forecast upgrades. Over the three years to 31 December 2012, the approach in quoted investments has been to concentrate on making fewer AIM investments and becoming a more engaged shareholder where possible and appropriate. This has taken time to implement as only a small minority of AIM companies qualify for VCT purposes. The average size by value of the AIM and Listed investments in the portfolio in December 2009 was Â£271,000 but this had increased by 99 per cent. to Â£539,000 by December 2012. Due to the significant uplift in the AIM and listed portfolio of Â£6.3 million during the year, the opportunity was taken to divest seven investments, mainly in legacy companies that were valued below cost, largely to reduce the tail of older and poorer performing investments, Of these, three were sold through trade sales (Clarity Commerce Solutions, Prologic and Stagecoach Theatre Arts), one through market sales (The Real Good Food Company) and three written off (Colliers International UK, Music Festivals and Adventis Group). Proceeds from these seven divestments totalled Â£0.7 million. This represented an overall uplift in recognised value during the year of Â£0.2 million but a loss against cost of Â£1.5 million. Some profits were taken from the investment in IDOX, with 11 per cent. of the holding sold for Â£593,000 realising a profit of Â£475,000 against cost. 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 generally larger and more liquid non VCT qualifying AIM and Small Cap opportunities. During the year, a further investment of Â£1 million was made into Wood Street. The Manager receives no additional fee for managing this fund. At 31 December 2012, Baronsmead VCT 3 had invested Â£3.5 million through Wood Street into a portfolio of 33 companies, valued at Â£4.5 million. Wood Street generated a positive return of 18 per cent. over the year. Liquid assets (cash and near cash) Baronsmead VCT 3 had cash and near cash resources of approximately Â£10 million at the year-end. This asset class is conservatively managed to take minimal or no capital risk. In addition, investments within the Wood Street fund are expected to be relatively more liquid than other investments as covered in the section above. This gives the Manager the possibility of realising cash from Wood Street should this ever be required to supplement liquid assets. Unquoted Investments During the year Â£5.2 million was invested in 6 unquoted companies including three new companies seeking acquisitions of which one was used to make the investment in Impetus Holdings described below. Three new unquoted investments were; â— Happy Days Consultancy, a children's nursery business, is based in the South West of the UK. The business has 17 sites already and the investment will help accelerate growth in new sites. This is a sector that the Manager has invested in before with a successful investment in Kidsunlimited which was realised in 2008. â— Pho Holdings is a group of traditional Vietnamese restaurants based in London. The Pho sites are informal, fast casual environments, specialising in Vietnam's national dish of Pho, a tasty and nutritious noodle soup. Pho was awarded `Best Emerging Concept' at this year's Retailer of the Year Awards. The first Pho location opened on St. John Street, Clerkenwell, London, in June 2005 and the group now has a total of seven sites across London and the South East. The new investment enables the team to open new sites, but with each site retaining a unique and independent feel. â— Impetus Holdings is a specialist business consultancy, supplying Sales and After Sales support services to the automotive industry. The business delivers a diverse range of programmes and projects for Vehicle Manufacturers, with much of their work taking place within Dealerships and National Sales Companies. Impetus Automotive has achieved strong growth in recent years with revenues increasing by 50 per cent. since 2010. Clients include VW, Land Rover, Audi, Toyota, BMW, CitroÃ«n, Fiat, Ford and Jaguar. Approximately 15 per cent. of work is delivered outside of the UK. The investment by ISIS will support the business in its continued expansion into new markets, building on the strong presence established in the UK and further development of new services to clients. Top Ten Investments The average investment value of the top ten companies held by Baronsmead VCT 3 is Â£3.1 million per company. Because these investments are normally held by the other four Baronsmead VCTs, the total managed by ISIS in each investee is significantly larger than this, which enables ISIS to dedicate significant resource to manage each investment and their progress. The top ten investees employ some 2,500 people, which is an increase of 22 per cent. over the last year. Their turnover and profits had also grown by some 15 per cent. annually for the last three years. Each of the top ten companies are described in more detail below. Investment Management ISIS continues to invest in its skills and capacity with over 40 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 that 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 the past fourteen 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: â— Business Services â— Financial Services â— Consumer Markets â— Healthcare & Education â— Technology, Media & Telecommunications OUTLOOK A number of commentators believe that the UK economy is unlikely to experience significant growth in the near future. At this stage of the recovery, this is hard to dispute and it is a fair working assumption for investors. However many of our portfolio companies and their management teams are now more experienced at handling the 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 who works with our investee to help them to grow revenue and earnings whilst continuing to enhance customer service and build resilient businesses with good momentum. 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 continue to be confident that good levels of performance can be maintained despite the ongoing challenging environment. ISIS EP LLP Investment Manager 15 February 2013 SUMMARY INVESTMENT PORTFOLIO Investment Classification at 31 December 2012 Sector by value Percentage Business Services 31% Consumer Markets 18% Financial Services 2% Healthcare & Education 16% Technology, Media & 33% Telecommunications ("TMT") Total assets by value Percentage Unquoted - loan stock 34% Unquoted - ordinary and 16% preference AIM, listed & collective 36% investment vehicle Listed interest bearing 3% securities Net current assets 11% principally cash Time Investments Held by Percentage value Less than 1 year 8% Between 1 & 3 years 24% Between 3 & 5 years 15% Greater than 5 years 53% Table of Investments and Realisations Investments in the year to 31 December 2012 Company Location Sector Activity Book cost Â£'000 Unquoted investments New Impetus Holding London Business Service Automotive 1,057 Limited consultancy and outsourced service provider Consumer Investment London Consumer Markets Company seeking to 1,000 Partners Limitedâ€ acquire businesses in the consumer markets sector Riccal Investments London Business Services Company seeking to 1,000 Limitedâ€¡ acquire businesses in the business services sector Pho Holdings Limited London Consumer Markets Restaurant group 987 specialising in Vietnamese street food Happy Days Newquay Healthcare & Provider of nursery 833 Consultancy Limited Education based childcare in Cornwall & Plymouth across 16 settings Follow on Crew Clothing London Consumer Markets Multi-channel 360 Holdings Limited clothing retailer Total unquoted 5,237 investments AIM-traded & listed investments New Zattikka plc London TMT* Online games 316 development Follow on Dods (Group) plc London TMT* Political information 678 and communication Hangar8 plc Oxford Business Services Business jet 344 management Tangent London Business Services Digital direct 215 Communications plc marketing Accumuli plc Salford TMT* Managed IT security 132 Inspired Energy plc Kirkham Business Services Energy procurement 100 consultancy services Electric Word plc London TMT* Business to business 80 publisher Driver Group plc Rossendale Business Services Dispute resolution 60 Total AIM-traded & listed 1,925 investments Collective investment vehicle Follow on Wood Street Mircocap 1,000 Investment Fund Total collective investment 1,000 vehicle Total investments in the year 8,162 # Technology, Media and Telecommunications ("TMT") â€ Formerly named Ingleby (1887) Limited. â€¡ Formerly named Ingleby (1885) Limited. Realisations in the year to 31 December 2012 Company First 31 Realised Overall investment December profit/ multiple date 2011 (loss) return Â£'000 this period Â£'000 Unquoted realisations TVC Group Limited Full trade Jul 08 1,298 26 1.1 sale MLS Limited Loan Jul 06 417 0 1.0 repayment Total unquoted 1,715 26 realisations AIM-traded & listed realisations IDOX plc Market sale Jan 09 357 236 5.0 Stagecoach Theatre Full trade Feb 01 153 140 0.7 Arts plc sale Real Good Food Full market Dec 03 160 65 0.4 Company (The) plc sale Prologic plc Full trade Jun 04 103 48 0.5 sale Clarity Commerce Full trade Oct 09 29 3 0.6 Solutions plc sale Colliers Written off Jul 01 4 (4) 0.0 International UK plc Adventis Group plc Written off Jun 04 10 (9) 0.0 Music Festivals plc Written off Jun 11 87 (87) 0.0 Total AIM-traded & listed 903 392 realisations Total realisations in the year 2,618 418â€ â€ Proceeds of Â£8,000 were received in respect of Getting Personal Limited, which had been sold in the year ended 31 December 2011. Ten Largest Investments The top ten investments by current value at 31 December 2012 illustrate the diversity and size of investee companies within the portfolio. This financial information is taken from publicly available information published at Companies House, which has been audited by the auditors of the investee companies. 1. IDOX PLC - London All ISIS EP LLP managed funds First investment: May 2002 Total cost: Â£2,460,000 Total equity held: 7.51% Baronsmead VCT 3 only Cost: Â£920,000 Valuation: Â£5,184,000 Valuation basis: Traded price % of equity held: 2.80% Year ended 31 October 2011 2010 Â£ million Â£ million Revenue 38.6 31.3 EBITA 9.5 7.5 Net Assets 34.4 31.0 No of employees 363 332 (Source: IDOX plc, Directors' Report and Financial Statements 31 October 2011) 2. NEXUS VEHICLE HOLDINGS LIMITED - Leeds All ISIS EP LLP managed funds First investment: February 2008 Total cost: Â£9,500,000 Total equity held: 56.00% Baronsmead VCT 3 only Cost: Â£2,368,000 Valuation: Â£4,768,000 Valuation basis: Earnings multiple % of equity held: 12.32% Year ended 30 2011 2010 September Â£ million Â£ million Revenue 38.3 33.5 EBITA 4.3 4.0 Net Assets 1.7 0.8 No of employees 90 73 (Source: Nexus Vehicle Holdings Limited, Report & Financial Statements 30 September 2011). EBITA: Earnings before interest, tax and amortisation 3. CABLECOM NETWORKING HOLDINGS LIMITED - Clevedon All ISIS EP LLP managed funds First investment: May 2007 Total cost: Â£5,600,000 Total equity held: 48.00% Baronsmead VCT 3 only Cost: Â£1,381,000 Valuation: Â£4,328,000 Valuation basis: Earnings Multiple % of equity held: 10.56% Year ended 30 2011 2010 September Â£ million Â£ million Revenue 12.2 8.2 EBITA 1.4 0.9 Net Assets 0.3 0.5 No of employees 61 52 (Source: CableCom Networking Holdings Limited, Report and Financial Statements 30 September 2011) 4. INDEPENDENT LIVING SERVICES LIMITED - Aberdeen All ISIS EP LLP managed funds First investment: September 2005 Total Cost: Â£5,829,000 Total equity held: 65.68% Baronsmead VCT 3 only Cost: Â£1,599,000 Valuation: Â£3,322,000 Valuation basis: Earnings Multiple % of equity held: 15.60% Year ended 30 2011 2010 September Â£ million Â£ million Revenue 20.1 17.2 EBITA 0.4 0.1 Net Liabilities (1.9) (0.7) No of employees 1,468 1,254 (Source: ILS Group Limited, Annual Report year ended 30 September 2011) 5. CREW CLOTHING HOLDINGS LIMITED - London All ISIS EP LLP managed funds First investment: November 2006 Total cost: Â£5,395,000 Total equity held: 25.51% Baronsmead VCT 3 only Cost: Â£1,344,000 Valuation: Â£3,020,000 Valuation basis: Earnings Multiple % of equity held: 6.08% Year ended 30 October 2011 2010 Â£ million Â£ million Revenue 40.7 34.6 EBITA 3.3 2.7 Net Assets 5.7 3.8 No of employees 311 284 (Source: Crew Clothing Holdings Limited, Report & Financial Statements30 October 2011) 6. KAFEVEND HOLDINGS LIMITED - Crawley All ISIS EP LLP managed funds First investment: October 2005 Total cost: Â£5,024,000 Total equity held: 66.50% Baronsmead VCT 3 only Cost: Â£1,252,000 Valuation: Â£2,956,000 Valuation basis: Earnings Multiple % of equity held: 15.79% Year ended 30 2011 2010 September Â£ million Â£ million Revenue 18.4 15.6 EBITA 1.9 2.0 Net Assets 1.5 1.2 No of employees 105 95 (Source: Kafevend Holdings Limited, Directors' Report and Financial Statements 30 September 2011) 7. CSC (WORLD) LIMITED - Pudsey, Leeds All ISIS EP LLP managed funds First investment: January 2008 Total cost: Â£6,450,000 Total equity held: 40.03% Baronsmead VCT 3 only Cost: Â£1,606,000 Valuation: Â£2,410,000 Valuation basis: Earnings Multiple % of equity held: 8.81% Year ended 31 March 2012 2011 Â£ million Â£ million Revenue 7.9 7.3 EBITA 2.4 2.3 Net Liabilities (2.0) (1.3) No of employees 59 58 (Source: Cobco 867 Limited, Financial Statements 31 March 2012) 8. VALLDATA GROUP LIMITED - Melksham All ISIS EP LLP managed funds First investment: January 2011 Total cost: Â£6,475,000 Total equity held: 39.84% Baronsmead VCT 3 only Cost: Â£1,616,000 Valuation: Â£1,754,000 Valuation basis: Earnings Multiple % of equity held: 8.76% Year ended 31 March 2012 2011 Â£ million Â£ million Revenue 7.1 6.3 EBITA 0.8 0.9 Net Assets 0.8 0.6 No of employees 137 126 (Source: Valldata Services Limited, Directors Report and Financial Statements 31 March 2012) 9. FISHER OUTDOOR LEISURE HOLDINGS LIMITED - St. Albans All ISIS EP LLP managed funds First investment: June 2006 Total cost: Â£5,700,000 Total equity held: 44.00% Baronsmead VCT 3 only Cost: Â£1,423,000 Valuation: Â£1,656,000 Valuation basis: Earnings Multiple % of equity held: 10.45% Year ended 31 July 2011Â² 2010Â¹ Â£ million Â£ million Revenue 43.6 26.5 EBITA 2.7 2.3 Net Assets 1.2 1.4 No of employees 110 96 Â¹ 12 month period ended 31 January 2010 Â² 18 month period ended 31 July 2011. The Company changed its year end from 31 January to 31 July (Source: Fisher Outdoor Leisure Holdings Limited, Directors' Report and Financial Statements 31 July 2011) 10. INSPIRED THINKING GROUP LIMITED - Birmingham All ISIS EP LLP managed funds First investment: May 2010 Total cost: Â£3,200,000 Total equity held: 22.50% Baronsmead VCT 3 only Cost: Â£796,000 Valuation: Â£1,571,000 Valuation basis: Earnings Multiple % of equity held: 4.95% Year ended 31 August 2011 2010 Â£ million Â£ million Revenue 21.5 12.9 EBITA 1.4 1.0 Net Assets 0.8 0.9 No of employees 117 96 (Source: Inspired Thinking Group Holdings Limited, Report of the Directors and Consolidated Financial Statements for year ended 31 August 2011) Extracts from the Report of the Directors The Chairman's Statement and the Corporate Governance Statement form part of the Report of the Directors. Results and Dividends The Directors present the twelfth Report and audited financial statements of the Company for the year ended 31 December 2012. Ordinary shares Â£'000 Profit on ordinary activities after taxation 8,959 Interim dividend of 3.0p per ordinary share paid on (1,893) 21 September 2012 Total dividends paid during the year (1,893) Subject to the approval at the forthcoming Annual general Meeting the final proposal dividend in respect of the year ended 31 December 2012 of 4.5p per ordinary share will be paid on 15 April 2013 to shareholders recorded on the register on 1 March 2013. Principal Activity and Status The Company is registered in England as a Public Limited Company (Registration number 04115341). The Directors have managed and intend to continue to manage the Company's affairs in such a manner so as to comply with Section 274 of the Income Tax Act 2007 which grants approval as a VCT. A review of the Company's business during the year is contained in the Chairman's Statement and Manager's Review. Business Review The Business Review has been prepared in accordance with the requirements of Section 417 of the Companies Act 2006 and best practice. The purpose of this review is to provide shareholders with a summary setting out the business objectives of the Company, the Board's strategy to achieve those objectives, the risks faced, the regulatory environment and the key performance indicators ("KPIs") used to measure performance. Strategy for achieving objectives Baronsmead VCT 3 plc is a tax efficient company listed on the London Stock Exchange's main market for listed securities and aims to achieve long-term investment returns for private investors. Investment Policy The Company's investment policy is to invest primarily in a diverse portfolio of UK growth businesses, whether unquoted or traded on AIM. Investments are made selectively across a range of sectors in companies that have the potential to grow and enhance their value. Investment securities The Company invests in a range of securities including, but not limited to, ordinary and preference shares, loan stocks, convertible securities, and fixed-interest bearing securities as well as cash. Unquoted investments are usually structured as a combination of ordinary shares and loan stocks, while AIM-traded investments are primarily held in ordinary shares. Pending investment in VCT qualifying and non-VCT qualifying unquoted, AIM-traded and other quoted securities (which may be held directly or indirectly through collective investment vehicles), cash is primarily held in an interest bearing accounts, money market open ended investment companies ("OEICs"), UK gilts and treasury bills. UK companies Investments are primarily made in companies which are substantially based in the UK, although many of these investees may have some trade overseas. VCT regulation The investment policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HM Revenue and Customs. Amongst other conditions, the Company may not invest more than 15 per cent. by value of its investments calculated in accordance with Section 278 of 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 Â£15 million of gross assets at the time of investment to be classed as a VCT qualifying holding. Asset mix The Company aims to be at least 90 per cent. invested, directly or indirectly, in VCT qualifying and non-qualifying growth businesses subject always to the quality of investment opportunities and the timing of realisations. It is intended that at least 75 per cent. of any funds raised by the Company will be invested in VCT qualifying investments. Non-VCT qualifying investments held in unquoted, AIM-traded and other quoted companies may be held directly or indirectly through collective investment vehicles. Risk diversification and maximum exposures Risk is spread by investing in a number of different businesses within different qualifying industry sectors using a mixture of securities. Generally no more than Â£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 The Company aims to invest in larger more mature unquoted and AIM-traded companies and to achieve this it invests alongside the other Baronsmead VCTs. Management retention The Manager's members and staff 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 and retain and incentivise the Manager's team and is made on terms which align the interest of Shareholders and the Manager. Borrowing powers The Company's policy is to use borrowing for short term liquidity purposes only up to a maximum of 25 per cent. of the Company's gross assets, as permitted by the Company's articles. 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, administrative, accounting 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. Principal risks, risk management and regulatory environment The Board believes that the principal risks faced by the Company are: Economic risk Events such as a continuing economic recession and movement in interest rates could affect smaller companies' valuations. The Manager's strategy to invest in a diverse portfolio of companies seeks to mitigate this risk. Regulatory risks General changes in legislation, regulations or government policy could significantly influence the decisions of investors or impact upon the markets in which the Company invests and the status of the Company as a VCT. * 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. * CP12/19 - as outlined in the Financial Services Authority consultation paper CP12/19, VCTs are potentially within the scope of proposed new regulations restricting the distribution of unregulated collective investment schemes and close substitutes to retail investors. Although the FSA has been receptive to concerns raised in response to the consultation paper, there is no certainty that VCTs will be excluded from the scope of the final regulations. However, if ultimately within scope, it is likely that such regulation would adversely affect the Company's ability to raise new funds in the future. * The Alternative Investment Fund Managers Directive ("AIFMD") - The AIFMD, 2011/61/EU, entered into force on 21 July 2011. European Member States are required to implement the AIFMD into national law by 22 July 2013. The AIFMD seeks to regulate managers ("AIFMs") of alternative investment funds ("AIFs") which are marketed or managed in the EU. AIFs, such as the Company, may, subject to satisfying certain requirements, obtain authorisation as an internally managed AIF or appoint a third party manager, such as the Manager, to act as its AIFM. Depending on how the Directive is implemented, this could have cost implications for the Company. The Board and the Company's advisers will continue to monitor the progress and likely implications of the AIFMD. * 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. Investment and strategic risk An inappropriate strategy, lack of good investment opportunities and increased competitiveness for deals, and poor asset allocation might lead to under performance and poor returns to shareholders. The Company's investment strategy is regularly reviewed by the Board and performance of the investment portfolio is considered at each meeting. Credit risk Cash management risk may occur by placing cash deposits with high risk institutions or not spreading cash effectively. The cash management strategy is set by the Board and the Investment Committee of the Manager approves all liquid asset investments. Due diligence is undertaken on the sponsor or manager of any non -government instruments invested in and this is updated on a regular basis to minimise the risk. Competitive Risk Retention of key personnel of the Manager is vital to the success of the Company. The Manager provides appropriate incentive schemes and a career development strategy to ensure retention of key personnel. Market risk Investments in AIM-traded and unquoted companies, by their nature, involve 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. 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. Reputational risk Inadequate or failed controls might result in breaches of regulations or loss of shareholder trust. Operational risk Failure of the Manager's and administrator's accounting systems or disruption to its business might lead to an inability to provide accurate reporting and monitoring. Internal controls reporting on all service providers is provided to the Board for review on a regular basis. Financial risk The Board has identified the Company's principal financial risks which are set out in the notes to the Financial Statements below. Inadequate controls might lead to misappropriation of assets. Inappropriate accounting policies might lead to misreporting or breaches of regulations. 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 FRC's "Internal Controls: Guidance to Directors". Details of the Company's internal controls are contained in the Corporate Governance section of the Company's Annual Report for the year ended 31 December 2012. Performance and key performance indicators ("KPIs") The Board expects the Manager to deliver a performance which meets the objectives of achieving long term investment returns, including tax-free dividends, for private investors. A review of the Company's performance during the financial period, the position of the Company at the year end and the outlook for the coming year is contained within the Chairman's Statement above. The Board assesses the performance of the Manager in meeting the Company's objective against the primary KPIs highlighted above. Issue and Buy-Back of Shares Pursuant to a top-up offer in February 2012, the Company allotted 3,853,400 ordinary shares at a price of 107.30p representing 5.4 per cent. of the then issued share capital with an aggregate nominal value of Â£385,340 raising Â£4,135,000 of new funds in total. The terms of issue were set out in the Offer Document dated 12 January 2012 and the offer price was set on 20 February 2012. As a result of an offer for subscription launched on 20 November 2012, the Company allotted a further 4,258,668 ordinary shares at a price of 117.40p representing 5.6 per cent. of the then issued share capital with an aggregate nominal value of Â£425,866.80 raising Â£5,000,000 of new funds in total. The terms of issue were set out in the Securities Note dated 20 November 2012 and the offer price was set on 21 December 2012. During the period the Company bought back 1,306,897 ordinary shares with a nominal value of 10p to be held in treasury representing 1.7 per cent. of the issued share capital at a cost of Â£1,257,743. No shares were sold from treasury during the period. Shares will not be sold at a discount wider than the discount prevailing at the time the shares were initially bought back by the Company. The Company holds 8,929,214 ordinary shares in treasury, being the maximum number of ordinary shares held in treasury during the year, representing 11.8 per cent. of the issued share capital as at 15 February 2013. Directors Biographies of the Directors who served during the year and at the date of this report are shown in the Annual Report for the year ended 31 December 2012. As explained in more detail under Corporate Governance in the Annual Report for the year ended 31 December 2012 and in accordance with the provisions of the AIC Code of Corporate Governance, the Board has agreed that Directors who have held office for more than nine years will retire annually. Accordingly, as Mr A Karney and Mrs G Nott have held office for a period of more than nine years, they will retire by rotation at the forthcoming Annual General Meeting of the Company and, being eligible, offer themselves for re-election. Mrs G Nott who is a director of Baronsmead VCT 2 plc and Baronsmead VCT 5 plc is also required to seek annual re-election under the terms of the UKLA's Listing Rules. Mr Orrock, who was elected at the Company's Annual General Meeting held in 2011, will in accordance with the Company's Articles of Association and the provisions of the AIC Code of Corporate Governance, retire at the forthcoming Annual General Meeting of the Company and, being eligible, offer himself for re-election. The Board confirms that, following formal performance evaluations, the performance of each of the Directors continues to be effective and demonstrates commitment to the role. The Board believes that it is therefore in the best interests of shareholders that the retiring Directors be re-elected. The interests of the Directors in the shares of the Company at the end of the current and prior year were as follows: 31 December 31 December 2012 2011 Ordinary Ordinary 10p shares 10p shares Anthony Townsend 44,439 7,609 Andrew Karney 86,548 82,709 Gillian Nott 82,739 55,900 Ian Orrock 15,535 - Total shares held 229,261 146,218 There have been no changes in the holdings of the Directors between 31 December 2012 and 15 February 2013. No Director has a service contract with the Company. All Directors are members of the Audit and Risk, Management Engagement and Remuneration and Nomination Committees. With a relatively small Board, it is deemed both practical and proportionate to involve all the Directors in each committee. The Directors who held office at the date of approval of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditors are unaware; and each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company's auditors are aware of that information. Directors' Professional Development When a new Director is appointed he or she is offered an induction programme that is arranged with the Manager. Directors are also provided on a regular basis with key information on the Company's policies, regulatory and statutory requirements and internal controls. Changes affecting directors' responsibilities are advised to the Board as they arise. Directors also regularly participate in industry seminars. Directors' Indemnity Directors' and officers' liability insurance cover is in place in respect of the Directors. The Company's Articles of Association provide, subject to the provisions of UK legislation, an indemnity for Directors in respect of costs which they may incur relating to the defence of any proceedings brought against them arising out of their positions as Directors, in which they are acquitted or judgement is given in their favour by the Court. Save for such indemnity provisions in the Company's Articles of Association and in the Directors' letters of appointment, there are no qualifying third party indemnity provisions. 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 FSA's rules) have been managed by FPPE LLP. This is a limited liability partnership, which is authorised and regulated by the FSA and which has the same controlling members as the Manager. The Manager has continued to act as the Manager of the Company and as the investment manager of the Company's illiquid assets (being all AIM-traded and other venture capital investments). The Manager also provides or procures the provision of accounting, secretarial, administrative and custodian services to the Company. The management agreement may be terminated at any date by either party giving twelve months' notice of termination. Under the management agreement, the Manager receives a fee of 2.5 per cent. per annum of the net assets of the Company. If the management agreement is terminated, the Manager is only entitled to the management fees paid to it and any interest due on unpaid fees. In addition, the Manager receives an annual secretarial and accounting fee that was initially fixed at Â£33,816 in 2006 and is revised annually to reflect the movement in RPI, plus a variable fee of 0.125 per cent. of the net assets of the Company which exceed Â£5 million. The annual fee was initially capped at Â£102,212 per annum and is also revised annually to reflect the movement in RPI. Annual running costs are capped at 3.5 per cent. of the net assets of the Company (excluding any performance fee payable to the Manager and irrecoverable VAT), any excess being refunded by the Manager by way of an adjustment to its management fee. The running cost as at 31 December 2012 was 3.0 per cent. During the year the Management Engagement and Remuneration Committee met to discuss and consider the continuing appointment of the Manager. The Committee reviewed and considered the agreements between the Company and the Manager and the Manager's performance and after careful consideration the Committee recommended to the Board that ISIS EP LLP should continue as Manager of the Company. It is the Board's opinion that the continuing appointment of ISIS EP LLP on the terms agreed is in the best interests of shareholders as a whole. The Board believes that the knowledge and experience accumulated by the Manager in the period since the launch of the first Baronsmead VCT in 1995 is reflected in processes which are designed to find, manage and realise good quality growth businesses. Co-investment Scheme The Co-investment Scheme was introduced in November 2004. Members of the Manager's investment team invest their own capital into a proportion of the ordinary shares of each and every unquoted investment made by the Baronsmead VCTs. The shares held by the members of the Co-investment Scheme in any portfolio company can only be sold at the same time as the investment held by the Baronsmead VCTs is sold. In addition, any prior ranking financial instruments, such as loan stock, held by the Baronsmead VCTs have to be repaid in full together with the agreed priority annual return before any gain accrues to the ordinary shares. This ensures that the Baronsmead VCTs achieve a good priority return before profits accrue to the Co-investment Scheme. The Board is keen to ensure that the Manager continues to have one of the best investment teams in the VCT and private equity market place and considers the Scheme to be essential in order to attract, retain and incentivise the best talent. The Scheme is in line with current market practice in the private equity industry and the Board believes that it aligns the interests of the Manager with those of the Baronsmead VCTs since executives have to invest their own capital in every unquoted transaction and cannot decide selectively in which investments to participate. In addition the Co-investment only delivers a return after each VCT has realised a priority return built into the structure. The executives participating in the Co-investment Scheme subscribe jointly for a proportion (currently 12 per cent.) of the ordinary shares available to the Baronsmead VCTs in each unquoted investment. The level of participation was increased from 5 per cent. in 2007 when the Manager's performance fee was reduced from 20 per cent. to its current level of 10 per cent. Since the formation of the Scheme in 2004, 52 executives have invested a total of Â£696k in 32 companies. At 31 December 2012 nine of these investments have been realised generating proceeds of Â£81 million for the Baronsmead VCTs and Â£4.7 million for the co-investment scheme. For Baronsmead VCT 3 the average money multiple on these nine realisations was 2.3 times cost. Had the co-investment shares been held instead by the Baronsmead VCTs that money multiple would have been 2.4 times cost. Over the period of eight years (based upon the current number of shares in issue) this equates to approximately 1.8p a share. Performance Incentive A performance fee is payable to the Manager when the total return on net proceeds of the ordinary share offers exceeds 8 per cent. per annum (simple) on net funds raised. The performance fee payable in any one year is capped at 5 per cent. of net assets. To the extent that the total return exceeds the threshold, a performance fee (plus VAT) will be paid to the Manager of 10 per cent. of excess performance. No performance fee was paid in 2011 and there is no performance fee payable for the year to 31 December 2012. ISIS Equity Partners - Advisory Fees During the year to 31 December 2012, ISIS EP LLP received net income of Â£96,550 (2011: Â£71,250) in connection with advisory fees and incurred abort fees of Â£59,382 (2011: Â£15,246) with respect to investments attributable to Baronsmead VCT 3. VCT Status Adviser The Company has retained PricewaterhouseCoopers LLP (`PwC') as its VCT Tax Status Advisers to advise it on compliance with VCT requirements. PwC reviews new investment opportunities, as appropriate, and reviews regularly the investment portfolio of the Company. PwC works closely with the Manager but reports directly to the Board. Creditor Payment Policy The Company's payment policy is to settle investment transactions in accordance with market practice and to ensure settlement of supplier invoices in accordance with stated terms. At 31 December 2012, there were no outstanding supplier invoices (2011: none). Environment The Company seeks to conduct its affairs responsibly and environmental factors are, where appropriate, taken into consideration with regard to investment decisions. Substantial Interests At 15 February 2013 the Company was not aware of any beneficial interest exceeding 3 per cent. of ordinary share capital in circulation. Going Concern After making enquires, and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. In arriving at this conclusion the Directors have considered the liquidity of the Company and its ability to meet obligations as they fall due for a period of at least twelve months from the date that these financial statements were approved. As at 31 December 2012 the Company held cash balances & investments in interest bearing securities and Money Market Funds with a combined value of Â£5,728,000. Cash flow projections have been reviewed and show that the Company has sufficient funds to meet both its contracted expenditure and its discretionary cash outflows in the form of the share buy-back programme and dividend policy. The Company has no external loan finance in place and therefore is not exposed to any gearing covenants. By Order of the Board, ISIS EP LLP Secretary 100 Wood Street London EC2V 7AN 15 February 2013 The full Annual Report contains the following statements regarding responsibility for the Annual Report and financial statements (references in the following statements are to pages in the Annual Report). Statement of Directors' Responsibilities Statement of Directors' Responsibilities in respect of the Annual Report and the Financial Statements The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK Accounting Standards. The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to: â€¢ select suitable accounting policies and then apply them consistently; â€¢ make judgments and estimates that are reasonable and prudent; â€¢ state whether applicable UK Accounting Standards ("UK GAAP") have been followed, subject to any material departures disclosed and explained in the financial statements; and â€¢ prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report (including Business Review), Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website, www.baronsmeadvct3.co.uk. Visitors to the website should be aware that legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Responsibility statement of the Directors in respect of the Annual Financial Report We confirm that to the best of our knowledge: â— the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and â— the Report of the Directors includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that it faces. On behalf of the Board, Anthony Townsend Chairman 15 February 2013 NON-STATUTORY ACCOUNTS The financial information set out below does not constitute the Company's statutory accounts for the years ended 31 December 2012 and 2011 but is derived from those accounts. Statutory accounts for 2011 have been delivered to the Registrar of Companies, and those for 2012 will be delivered in due course. The Auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditors' report can be found in the Company's full Annual Report and Accounts at www.baronsmeadvct3.co.uk. Income Statement For the year ended 31 December 2012 2012 2011 Notes Revenue Capital Total Revenue Capital Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Unrealised gains on 8 - 9,373 9,373 - 1,403 1,403 investments Realised gains on 8 - 426 426 - 1,824 1,824 investments Income 2 1,187 - 1,187 1,963 - 1,963 Investment management 3 (409) (1,228) (1,637) (385) (1,155) (1,540) fee Other expenses 4 (390) - (390) (365) - (365) Profit on ordinary 388 8,571 8,959 1,213 2,072 3,285 activities before taxa tion Taxation on ordinary 5 (25) 25 - (244) 244 - activities Profit on ordinary 363 8,596 8,959 969 2,316 3,285 activities after taxation Return per ordinary 7 0.58p 13.67p 14.25p 1.61p 3.85p 5.46p share: Basic 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. There are no recognised gains and losses other than those disclosed in the Income Statement therefore a separate statement of total recognised gains and losses has not been prepared. Reconciliation of Movements in Shareholders' Funds For the year ended 31 December 2012 Notes 2012 2011 Â£'000 Â£'000 Opening shareholders' funds 60,095 64,643 Profit for the year 8,959 3,285 Gross proceeds of share issues 11/12 9,135 - Purchase and sales of shares for treasury 12 (1,260) (613) Expenses of share issue and buybacks 12 (474) (6) Dividends paid 6 (1,893) (7,214) Closing shareholders' funds 74,562 60,095 Balance Sheet As at 31 December 2012 Notes 2012 2011 Â£'000 Â£'000 Fixed assets Investments 8 66,740 59,312 Current assets Debtors 9 5,261 562 Cash at bank 1,438 683 Cash on deposit 1,800 8,499 1,245 Creditors (amounts falling due within one year) 10 (677) (462) Net current assets 7,822 783 Net assets 74,562 60,095 Capital and reserves Called-up share capital 11 7,573 6,762 Share premium account 12 22,866 15,012 Capital redemption reserve 12 10,862 10,862 Capital reserve 12 18,928 24,262 Revaluation reserve 12 13,649 2,876 Revenue reserve 12 684 321 Equity shareholders' funds 13 74,562 60,095 Net asset value per share - Basic 13 111.62p 100.16p - Treasury 13 110.88p 99.16p The financial statements were approved by the Board of Directors on 15 February 2013 and were signed on its behalf by: Anthony Townsend (Chairman) Cash Flow Statement For the year ended 31 December 2012 2012 2011 Notes Â£'000 Â£'000 Operating activities Investment income received 1,337 1,787 Deposit interest received 7 3 Other income received - 63 Investment management fees paid (1,572) (1,570) Other cash payments (378) (357) Net cash outflow from operating activities 15 (606) (74) Capital expenditure and financial investment Purchases of investments (63,220) (91,893) Disposals of investments 65,620 99,215 Net cash inflow from capital expenditure and 2,400 7,322 financial investment Dividends Equity dividends paid 6 (1,893) (7,214) Net cash(outflow)/inflow before financing (99) 34 Financing Gross proceeds of share issues 4,135 - Purchase and sale of shares for treasury (1,260) (613) Expenses on share issue and buybacks (221) (6) Net cash inflow/(outflow) from financing 2,654 (619) Increase/(decrease) in cash at bank and on 2,555 (585) deposit in the year Reconciliation of net cash flow to movement in net cash at bank and on deposit Increase/(decrease) in cash at bank and on 2,555 (585) deposit Opening cash at bank and on deposit 683 1,268 Closing cash at bank and on deposit 14 3,238 683 The accompanying notes are an integral part of these statements. Notes to the Accounts 1. Accounting polices (a) 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. The Company is no longer an investment company as defined by Section 833 of the Companies Act 2006, as investment company status was revoked on 4 February 2004 in order to permit the distribution of capital profits. The principal accounting policies adopted are set out below. Presentation of the Income Statement 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. (b) Valuation of investments Purchases or sales of investments are recognised at the date of transaction. Investments are valued at fair value. For AIM traded, listed securities and collective investment vehicles 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 fair valued by the Directors using methodology which is consistent with the International Private Equity and Venture Capital Valuation ("IPEV") guidelines. 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. (c) Income Interest income on loan stock 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 stocks 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 on the date that the related investments are marked ex-dividend and where no dividend date is quoted, when the Company's right to receive payment is established. (d) Expenses All expenses are recorded on an accruals basis. (e) Revenue/capital The revenue column of the income statement includes all income and expenses. The capital column accounts for the realised and unrealised profit and loss on investments and the proportion of management fee charged to capital. (f) Issue costs Issue costs are deducted from the share premium account. (g) Deferred taxation Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more, or the right to pay less, tax in future have occurred at the balance sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the financial statements which are capable of reversal in one or more subsequent periods. (h) Capital reserves (i) Capital Reserve Gains and losses on realisation of investments of a capital nature are dealt with in this reserve. Purchase 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. (ii) Revaluation Reserve Changes in fair value of unrealised investments, are dealt with in this reserve. 2. Income 2012 2011 Â£'000 Â£'000 Income from investmentsâ€ UK franked 285 281 UK unfranked 820 1,242 UK unfranked - reinvested 29 - Redemption premium 45 374 1,179 1,897 Other incomeâ€¡ Deposit interest 8 3 Other income - 63 Total income 1,187 1,963 Total income comprises: Dividends 285 282 Interest 902 1,681 1,187 1,963 Income from investments: AIM-traded & listed securities 298 309 Unquoted securities 881 1,588 1,179 1,897 â€ All investments have been designated fair value through profit or loss on initial recognition, therefore all investment income arises on investments at fair value through profit or loss. â€¡ Other income on financial assets not designated fair value through profit or loss. 3. Investment management fee 2012 2011 Â£'000 Â£'000 Investment management fee 1,637 1,540 Performance fee - - 1,637 1,540 For the purposes of the revenue and capital columns in the income statement, the management fee has been allocated 25 per cent. to revenue and 75 per cent. to capital, in line with the Board's expected long term return in the form of income and capital gains respectively from the Company's investment portfolio. The management agreement may be terminated by either party giving twelve months notice of termination. The Manager, ISIS EP LLP, receives a fee of 2.5 per cent. per annum of the net assets of the Company, calculated and payable on a quarterly basis. The Manager is entitled to a performance fee when the total return on net proceeds of the ordinary share offers exceeds 8 per cent. per annum (on a simple basis) on net funds raised. To the extent that the Total Return exceeds this threshold, a performance fee (plus VAT) will be paid to the Manager of 10 per cent. of the excess. The performance fee payable in any one year will be capped at 5 per cent. of the Shareholders' funds at end of the calculation period. No performance fee is payable for the year ended 31 December 2012 (2011: Â£nil). In addition, the Manager receives an annual secretarial and accounting fee that was initially fixed at Â£33,816 in 2006 and is revised annually to reflect the movement in RPI, plus a variable fee of 0.125 per cent. of the net assets of the Company which exceed Â£5 million. The annual fee was initially capped at Â£102,212 per annum and is also revised annually to reflect the movement in RPI. It is chargeable 100 per cent. to revenue. Amounts payable to the Manager at the year end are disclosed in note 10. 4. Other expenses 2012 2011 Â£'000 Â£'000 Directors' fees 80 73 Secretarial and accounting fees 121 113 Remuneration of the auditors and their associates: - audit 21 22 - other services supplied pursuant to legislation 5 5 (interim review) - other services supplied relating to taxation 7 9 - Other 156 143 390 365 The Chairman received Â£25,000 per annum (2011: Â£23,500) and the Audit Chairman received Â£20,000 per annum (2011: Â£16,625). Each of the other Directors received Â£17,500 per annum (2011: Â£16,000). Charges for other services provided by the auditors in the year ended 31 December 2012 were in relation to the interim review and tax compliance work (including iXBRL). The Audit and Risk Committee reviews the nature and extent of non-audit services to ensure that independence is maintained. The Directors consider the auditors were best placed to provide these services. All figures include VAT, where applicable. The Company is not registered for VAT. 5. Tax on ordinary activities 5a. Analysis of charge for the year 2012 2011 Â£'000 Â£'000 UK corporation tax - - The income statement shows the tax charge allocated between revenue and capital. 5b. Factors affecting tax charge for the year 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: 2012 2011 Revenue Capital Total Revenue Capital Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Profit on ordinary 388 8,571 8,959 1,213 2,072 3,285 activities before taxation Corporation tax at a rate 95 2,100 2,195 321 549 870 of 24.5 per cent. (2011: 26.5 per cent.) Effect of: Non-taxable dividend income (70) - (70) (74) - (74) Non-taxable investment - (2,401) (2,401) - (855) (855) gains Marginal relief - - - (3) 3 - Losses carried forward - 276 276 - 59 59 Tax charge for the year 25 (25) - 244 (244) - (note 5a) At 31 December 2012 the Company had surplus management expenses of Â£3,045,000 (2011: Â£1,856,000) 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. 6. Dividends 2012 2011 Revenue Capital Total Revenue Capital Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Amounts recognised as distributions to equity holders in the year: For the year ended 31 December 2010 - Final dividend of 4.5p - - - 546 2,183 2,729 per ordinary share paid on 8 April 2011 For the year ended 31 December 2011 - Interim dividend of 3.0p - - - 389 1,407 1,796 per ordinary share paid on 29 September 2011 - Second interim divided of - - - 597 2,092 2,689 4.5p per ordinary share paid on 9 December 2011 For the year ended 31 December 2012 - Interim dividend of 3.0p - 1,893 1,893 per ordinary share paid on 21 September 2012 - 1,893 1,893 1,532 5,682 7,214 A final dividend of 4.5p per share is proposed. In the 2011 financial year Baronsmead VCT 3 paid a second interim dividend in lieu of a final dividend which resulted in three dividend payments during the year. 7. Returns per share The 14.25p return per ordinary share (2011: 5.46p return) is based on the net profit from ordinary activities after taxation of Â£8,959,000 (2011: Â£3,285,000 profit) and on 62,863,845 ordinary shares (2011: 60,112,945), being the weighted average number of shares in circulation during the year. 8. Investments All investments are designated fair value through profit or loss at initial recognition, therefore all gains and losses arise on investments designated at fair value through profit or loss. Financial Reporting Standard 29 `Financial Instruments: Disclosures' (the Standard) requires an analysis of investments valued at fair value based on the reliability and significance of the information used to measure their fair value. The level is determined by the lowest (that is the least reliable or independently observable) level of input that is significant to the fair value measurement for the individual investment in its entirety as follows: * Level 1 - investments whose prices are quoted in an active market. * Level 2 - investments whose fair value is based directly on observable current market prices or indirectly being derived from market prices. * Level 3 - investments whose fair value is determined using a valuation technique based on assumptions that are not supported by observable current market prices or based on observable market data. 2012 2011 Â£'000 Â£'000 Level 1 Interest bearing securities 2,490 9,979 Investments traded on AIM 20,833 14,402 Investments listed on LSE 1,808 1,318 25,131 25,699 Level 2 Collective investment vehicle (Wood Street Microcap 4,525 2,826 Investment Fund) Level 3 Unquoted investments 37,084 30,787 66,740 59,312 2012 2011 Â£'000 Â£'000 Equity shares 38,946 28,324 Loan notes 25,226 21,009 Preference shares 78 - Fixed income securities 2,490 9,979 66,740 59,312 8. Investments (continued) Level 1 Level 2 Level 3 Listed interest Collective bearing Traded Listed investment securities on AIM on LSE vehicle Unquoted Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Opening book cost 9,979 17,310 1,729 2,525 24,893 56,436 Opening unrealised - (2,908) (411) 301 5,894 2,876 (depreciation)/ appreciation Opening valuation 9,979 14,402 1,318 2,826 30,787 59,312 Movements in the year: Purchases at cost 55,087 1,925 - 1,000 5,237 63,249 Sales - proceeds (62,576) (1,295) - - (1,749) (65,620) - realised gains on sales - 392 - - 34 426 Unrealised (losses)/gains - (1,465) - - 65 (1,400) realised during the year Increase in unrealised - 6,874 490 699 2,710 10,773 appreciation Closing valuation 2,490 20,833 1,808 4,525 37,084 66,740 Closing book cost 2,490 16,867 1,729 3,525 28,480 53,091 Closing unrealised - 3,966 79 1,000 8,604 13,649 appreciation Closing valuation 2,490 20,833 1,808 4,525 37,084 66,740 During the year the Company incurred brokerage costs on purchases of Â£1,500 (2011: Â£1,800) and brokerage costs on sales of Â£2,100 (2011: Â£1,000) in respect of ordinary shareholder interests. The gains and losses included in the above table have all been recognised in the Income Statement above. The Standard requires disclosure, by class of financial instruments, if the effect of changing one or more inputs to reasonably possible alternative assumptions would result in a significant change to the fair value measurement. The information used in determination of the fair value of Level 3 investments is chosen with reference to the specific underlying circumstances and position of the investee company. 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 unquoted investments. Applying the downside alternatives the value of the unquoted investments would be Â£2.5 million or 6.8 per cent. lower. Using the upside alternative the value would be increased by Â£2.6 million or 7.0 per cent. 9. Debtors 2012 2011 Â£'000 Â£'000 Prepayments and accrued income 375 562 Amounts due from fundraising 4,886 - 5,261 562 10. Creditors (amounts falling due within one year) 2012 2011 Â£'000 Â£'000 Management, performance, secretarial and accounting fees 474 405 due to the Manager Fundraising costs 139 - Other creditors 64 57 677 462 11. Called-up share capital Allotted, called-up and fully paid: Â£'000 Ordinary shares 67,619,851 ordinary shares of 10p each listed at 31 December 2011 6,762 8,112,068 ordinary shares of 10p each issued during the year 811 75,731,919 ordinary shares of 10p each listed at 31 December 2012 7,573 7,622,317 ordinary shares of 10p each held in treasury at (762) 31 December 2011 1,306,897 ordinary shares of 10p each repurchased during the year (131) and held in treasury 8,929,214 ordinary shares of 10p each held in treasury at (893) 31 December 2012 66,802,705 ordinary shares of 10p each in circulation at 6,680 31 December 2012 As at 15 February 2013 the Company's issued share capital was 75,731,919 ordinary shares of 10 pence each, of which 8,929,214 were held in treasury. The number of shares in circulation was 66,802,705 ordinary shares carrying one vote each. The capital of the Company is managed in accordance with its investment policy, in pursuit of its investment objectives, both of which are detailed in the Report of the Directors in the Annual Report and Accounts. Treasury shares The Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003 came into force on 1 December 2003 and allowed the Company to hold shares acquired by way of market purchase as treasury shares, rather than having to cancel them. Shareholders have previously approved a resolution permitting the Company to issue shares from treasury at a discount to the prevailing NAV if the Board considers it in the best interests of the Company to do so. However, treasury shares will not be sold at a discount wider than the discount prevailing at the time the shares were initially bought back by the Company. It is the Board's intention only to use the mechanism of reissuing treasury shares when demand for the Company's shares is greater than the supply available in the market place. Treasury shares would not be considered by HM Revenue & Customs to be new shares entitling the purchaser to initial income tax relief, and therefore shares are unlikely to be issued from treasury in the same year as a `top up' offer for subscription. The Company does not have any externally imposed capital requirements. Where shares are bought back but not cancelled the share capital remains unchanged. The NAV is calculated by using the number of shares in issue less those bought back and held in treasury. 12. Reserves Share Capital Capital Revaluation Revenue premium redemption reserve reserve reserve account reserve Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 At 31 December 2011 15,012 10,862 24,262 2,876 321 Gross proceeds of share 8,324 - - - - issues Purchase of shares for - - (1,260) - - treasury Expenses of share issue (470) - (4) - - and buybacks Reallocation of prior - - (1,400) 1,400 - year unrealised gains Realised gain on - - 426 - - disposal of investments* Net increase in value of - - - 9,373 - investments* Management fee - - (1,228) - - capitalised* Taxation relief from - - 25 - - capital expenses* Revenue profit on - - - - 363 ordinary activities after taxation* Dividends paid in the - - (1,893) - - year At 31 December 2012 22,866 10,862 18,928 13,649 684 At 31 December 2012, reserves distributable by way of dividend amounted to Â£19,612,000 (2011: Â£21,264,000), comprising the capital reserve and revenue reserve less the net unrealised loss on those level one investments whose prices are quoted in an active market and deemed readily realisable. * The total of these items is Â£8,959,000 which agrees to the total profit on ordinary activities after taxation. 13. Net asset value per share The net asset value per share and the net asset values attributable to the ordinary shares at the year end are calculated in accordance with their entitlements in the Articles of Association and were: Net asset value per Net asset value Number of shares share attributable attributable 2012 2011 2012 2011 2012 2011 Number Number Pence pence Â£'000 Â£'000 Ordinary shares 66,802,705 59,997,534 111.62 100.16 74,562 60,095 (basic) Ordinary shares 75,731,919 67,619,851 110.88 99.16 83,971 67,050 (treasury) Basic net asset value per share is based on net assets at the year end, and on 66,802,705 (2011: 59,997,534) ordinary shares, being the respective number of shares in circulation at the year end. The treasury net asset value per share as at 31 December 2012 included ordinary shares held in treasury valued at the mid share price of 105.38p at 31 December 2012 (2011: 91.25p). 14. Analysis of changes in cash 2012 2011 Â£'000 Â£'000 Beginning of year 683 1,268 Net cash inflow/(outflow) 2,555 (585) As at 31 December 2012 3,238 683 15. Reconciliation of profit on ordinary activities before taxation to net cash outflow from operating activities 2012 2011 Â£'000 Â£'000 Profit on ordinary activities before taxation 8,959 3,285 Gains on investments (9,799) (3,227) Decrease/(increase) in debtors 187 (101) Increase/(decrease) in creditors 76 (31) Income reinvested (29) - Net cash outflow from operating activities (606) (74) 16. Contingencies, guarantees and financial commitments At 31 December 2012 there were no contingent liabilities, guarantees or financial commitments of the Company. 17. Significant interests There are no interests of 20 per cent. or more of any class of share capital in any underlying holdings in investee companies. Further information on the significant interests is disclosed in the Investment Portfolio above. 18. Financial instruments and associated risks The Company's financial instruments comprise equity and fixed interest investments, cash balances and liquid resources. The Company holds financial assets in accordance with its investment policy to invest in a diverse portfolio of established and profitable UK unquoted companies and companies raising new share capital on AIM. Fixed asset investments (see note 8) are valued at fair value. For quoted securities this is either bid price or the last traded price, depending on the convention of the exchange on which the investment is quoted. In respect of unquoted investments, these are valued at fair valued by the Directors (using rules consistent with IPEV (International Private Equity and Venture Capital Valuation) Guidelines). The fair value of all other financial assets and liabilities is represented by their carrying value in the Balance sheet. The Company's investing activities expose it to various types of risk that are associated with financial instruments and markets in which it invests. The most important types of financial risk to which the Company is exposed are market risk, interest rate risk, credit risk and liquidity risk. The nature and extent of the financial instruments held at the balance sheet date and the risk management policies employed by the Company are discussed in notes 19 to 22. 19. Market risk Market risk embodies the potential for both losses and gains and includes interest rate risk and price risk. The Company's strategy on the management of investment risk is driven by the Company's investment objective as outlined in note 18. The management of market risk is part of the investment management process and is typical of private equity investment. The portfolio is managed in accordance with policies and procedures in place as described in more detail in the extracts from the Report of the Directors above, with an awareness of the effects of adverse price movements through detailed and continuing analysis, with an objective of maximising overall returns to shareholders. Investments in unquoted stocks and AIM traded companies, by their nature, involve a higher degree of risk than investments in the main market. Some of that risk can be mitigated by diversifying the portfolio across business sectors and asset classes. The Company's overall market positions are monitored by the Board on a quarterly basis. Details of the Company's investment portfolio at the balance sheet date are disclosed in the schedule of investments set out above. An analysis of investments between debt and equity instruments is disclosed in note 8. 41 per cent. (2011: 31 per cent.) of the Company's investments are listed on the London Stock Exchange, traded on AIM or invested through Wood Street Microcap Fund. A 5 per cent. increase in stock prices as at 31 December 2012 would have increased the net assets attributable to the Company's shareholders and the total profit for the year by Â£1,358,000 (2011: Â£927,000); an equal change in the opposite direction would have decreased the net assets attributable to the Company's shareholders and the total profit for the year by an equal amount. 56 per cent. (2011: 52 per cent.) of the Company's investments are in unquoted companies held at fair value. 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 be indirectly affected by price movements on the listed exchanges. A 5 per cent. increase in the valuations of unquoted investments at 31 December 2012 would have increased the net assets attributable to the Company's shareholders and the total profit for the year by Â£1,854,000 (2011: Â£1,539,000); an equal change in the opposite direction would have decreased the net assets attributable to the Company's shareholders and the total profit for the year by an equal amount. 20. Interest rate risk At 31 December 2012 Â£2,000,000 (2011: Â£6,799,000) fixed rate securities were held by the Company. As a result, the Company is exposed to fair value interest rate risk due to fluctuations in the prevailing levels of market interest rates. However the effect of these interest rate changes is not materially significant. At 31 December 2012 Â£25,226,000 (2011: Â£21,009,000) fixed rate loan notes were held by the Company. The weighted average coupon rate for the loan note securities is 9.38 per cent. as at 31 December 2012 (2011: 9.34 per cent.). Due to the complexity of the instruments and uncertainty surrounding timing of redemption the weighted average time for which the rate is fixed has not been calculated. The table below summarises weighted average effective interest rates for the other fixed interest-bearing financial instruments: Fixed rate 2012 2011 Total Weighted Weighted Total Weighted Weighted fixed average average fixed average average rate interest time for rate interest time for portfolio rate which rate portfolio rate which Â£'000 % is fixed Â£'000 % rate days is fixed days Fixed interest 2,000 0.12 21 6,799 0.2 3 instruments Floating rate When the Company retains cash balances, the majority of cash is ordinarily held on interest bearing deposit accounts and, where appropriate, within an interest bearing money market open ended investment company ("OEIC"). The benchmark rate which determines the interest payments received on interest bearing cash balances is the bank base rate which was 0.5 per cent. as at 31 December 2012 (2011: 0.5 per cent.). 2012 2011 Â£'000 Â£'000 Floating rate Floating rate instruments ("OEIC") 490 3,180 Cash at bank 1,438 683 Cash on deposit 1,800 - 3,728 3,863 21. Credit risk Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Investment Manager has in place a monitoring procedure in respect of counterparty risk which is reviewed on an ongoing basis. The carrying amounts of financial assets represent the maximum credit risk exposure at the balance sheet date. At the reporting date, the Company's financial assets exposed to credit risk amounted to the following: 2012 2011 Â£'000 Â£'000 Investments in fixed interest instruments 2,000 6,799 Investments in floating rate instruments 490 3,180 Cash at bank 1,438 683 Cash on deposit 1,800 - Interest, dividends and other receivables 5,261 562 10,989 11,224 Credit risk arising on unquoted loan notes is considered in conjunction with the associated equity investment in the portfolio company. Credit risk arising on fixed interest instruments is mitigated by investing in UK Government Stock. Credit risk arising on floating rate instruments is mitigated by investing in money market open ended investment companies managed by BlackRock. Credit risk on unquoted loan stock held within unlisted investments is considered to be part of market risk as disclosed in note 19. 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 assets of the Company which are traded on a recognised exchange are held by JP Morgan Chase ("JPM"), the Company's custodian. The Board monitors the Company's risk by reviewing the custodian's internal controls reports as described in the Corporate Governance section in the Annual Report. 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 2012 or 31 December 2011. No individual investment exceeded 6.9 per cent. of the net assets attributable to the Company's shareholders at 31 December 2012 (2011: 9.4 per cent ). 22. 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-traded equity investments both 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 extracts 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 2012 these investments were valued at Â£5,728,000 (2011: Â£10,662,000). 23. Related parties Related party transactions include Management, Secretarial, Accounting and Performance fees payable to the Manager, ISIS EP LLP, as disclosed in notes 3 and 4, and fees paid to the Directors as disclosed in note 4. In addition, the Manager operates a Co-Investment Scheme, detailed in the extracts from the Report of the Directors above, whereby employees of the Manager are entitled to participate in certain unquoted investments alongside the Company. 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: www.morningstar.co.uk/uk/NSM. Annual General Meeting The Company's Annual General Meeting will be held at Plaisterers' Hall, One London Wall, London EC2Y 5JU on Wednesday, 10 April 2013 at 10:30a.m. Annual Report and Accounts The Annual Report and Accounts will be posted to shareholders on Friday, 1 March and will shortly be available on the Company's website located at www.baronsmeadvct3.co.uk. 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.

Companies

Baronsmead Second Venture Trust (BMD)

Thursday, 21st November 2024

COMPANIES COVERED:

HLMA JD. ITH

JD Sports tanks after management tighten profit guidance towards the lower end of expectations, Halma finds support from strong earnings and capital return commitment cheers shareholders in Ithica Energy.

Full Archive

UK 100

Latest directors dealings

17 minutes ago Luceco
1 hour ago RHI Magnesita N.V. (DI)
3 hours ago Nostra Terra Oil & Gas Co
3 hours ago ActiveOps
3 hours ago BHP Group Limited NPV (DI)

All directors dealings today