Annual Financial Report For Y/E 30/09/20

RNS Number : 5228H

Baronsmead Second Venture Trust PLC

03 December 2020

 

Baronsmead Second Venture Trust plc

Annual Report and Audited Financial Statements

for the year ended 30 September 2020

The Directors of Baronsmead Second Venture Trust plc are pleased to announce the Annual financial report for the year ended 30 September 2020. Copies of the Annual financial report can be obtained from the following website:  www.baronsmeadvcts.co.uk .

Financial Highlights

· Net asset value ("NAV") total return of 316.4p to shareholders for every 100.0p invested at launch (January 2001).

·   NAV per share increased 4.2 per cent to 76.7p before deduction of dividends 12 months to the year ended 30    September 2020

· Annual tax free dividend yield of 8.8 per cent based on 6.5p dividends paid (including proposed final dividend of 3.5p) and opening NAV of 73.6p

· £9.9 million of investments made into 5 new and 10 follow-on opportunities during the year.

Our Investment Objective

Baronsmead Second Venture Trust plc is a tax efficient listed company which aims to achieve long-term investment returns for private investors, including tax-free dividends.

Investment Policy

· To invest primarily in a diverse portfolio of UK growth businesses, whether unquoted or traded on AIM.

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

Dividend Policy

· The Board will, where possible, seek to pay two dividends to Shareholders in each calendar year, typically an interim dividend in September and a final dividend following the Annual General Meeting in February/March;

· The Board will use, as a guide, when setting the dividends for a financial year, a sum representing 7 per cent of the opening NAV of that financial year.

Key elements of the Business Model

Access to an attractive, diverse portfolio

Baronsmead Second Venture Trust plc gives shareholders access to a diverse portfolio of growth businesses.

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

The Manager's approach to investing

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

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

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

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

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

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

The Manager as an influential shareholder

The Manager is an engaged and supportive shareholder (on behalf of the Company) in both unquoted and significant quoted investments. For unquoted investments, representatives of the Manager often join the investee board. The role of the Manager, with investees is to ensure that strategy is clear, the business plan can be implemented and that the management resources are in place to deliver profitable growth. The intention is to build on the business model and grow the company into an attractive target able to be either sold or potentially floated in the medium term.

A more detailed explanation of how the business model is applied is provided in the Other Matters section of the Strategic Report below.

CHAIRMAN'S STATEMENT

Despite the unprecedented challenges faced by the global economy and by many of the companies in which we invest, I am pleased to be able to report a valuation increase in NAV of 4.2 per cent in the portfolio during the financial year to 30 September 2020, before the payment of dividends.

After the significant reduction in the value of the public company portfolio as reported in the six months to March 2020, I am delighted to report a material bounce in the share prices of these listed companies in the second half of the financial year, leading to a valuation increase of 22 per cent in the directly-held AIM portfolio during the year as a whole. The unquoted portfolio also performed positively in the second half of the financial year, recovering some of the decline in value seen immediately after the outbreak of the pandemic. The consumer facing businesses in the portfolio still face substantial headwinds, but represent a relatively small part of the overall portfolio (currently 11 per cent). Your Board is confident that Gresham House, the Investment Manager, is well-resourced to continue supporting the portfolio companies through the ongoing uncertainty.

Results

	Pence per ordinary share
NAV as at 1 October 2019 (after final dividend)	73.6
Valuation increase (4.2 per cent)	3.1
NAV as at 30 September 2020 before dividends paid out	76.7
Less: Interim dividend paid on 11 September 2020	(3.0)
Proposed final dividend of 3.5p payable, after shareholder approval, on 5 March 2021	(3.5)
Illustrative NAV as at 30 September 2020 after proposed dividends	70.2

Portfolio Review

At 30 September 2020, the Company's investment portfolio was valued at £121 million and comprised direct investments in a total of 75 companies, of which 32 are unquoted and 43 are quoted companies. The Company's investments in the LF Gresham House UK Micro Cap Fund ("Micro Cap"), LF Gresham House UK Multi Cap Income Fund ("Multi Cap") and LF Gresham House UK Smaller Companies Fund ("Small Cap") provide additional diversity. These funds give investment exposure to an additional 75 AIM-traded and fully listed companies and thus mean that the overall portfolio has exposure to 150 companies.

During the 12 months to 30 September 2020, the underlying value of the unquoted portfolio decreased by 6 per cent. While it is always disappointing to see a reduction in the value, the Board has appreciated the efforts of the Investment Manager who has closely worked with portfolio company management teams helping them navigate through the highly disruptive and volatile economic and social environment. The Manager's review of the year provides further details of the impact of the pandemic on specific sectors of the portfolio.

In my half yearly statement, I reported that the direct AIM investments and Equity Fund portfolios each experienced a material reduction in share prices between mid-February and mid-March as the markets responded to the uncertainty about the economy, corporate earnings and, in some cases, balance sheet resilience. I am pleased to report that the portfolio   of directly held AIM investments increased by 22 per cent during the whole financial year while the UK Micro Cap, Multi Cap and Small Cap Funds increased by 5 per cent, 3 per cent and 3 per cent respectively.

The recovery of the public portfolio emphasises the benefits of having a mixture of private and publicly listed companies in the portfolio. Over the long-term, the return profiles of the quoted and unquoted portfolios have proved to be complementary, with both asset classes delivering robust performance.

Investments and Divestments

The Manager has continued to build its investment activity to focus on the provision of development capital to earlier stage companies. The Board is pleased to report that new investments have continued to be completed despite the disruption of COVID-19. During the year the Company invested a total of nearly £10 million in 15 companies. Further details of the new investments made are included in the Manager's review of the year. The new investments in earlier stage opportunities may result in greater volatility in returns over time. However, the more mature, established portfolio of existing investments should assist in sustaining returns for shareholders as the new portfolio develops and grows. The portfolio is also well diversified by sector split and by the number of holdings.

The Manager continues to focus on driving liquidity in the portfolio in order to create realised capital profits to fund current and future dividends for shareholders. There have been a number of realisations in both the unquoted and quoted portfolios. The sale of Glide delivered total proceeds of £6.2 million for a total gross money multiple of 2.6x cost. This return is in addition to the 4.8x return made on the partial exit in 2013 and represents a strong long--term investment return for shareholders.

As reported last year, the investment in CR7 was sold for nil proceeds in October 2019. CR7 required further investment beyond the levels expected and, rather than invest, the shareholders agreed to sell the business to a strategic trade buyer at a level that, unfortunately, did not recover any of the investment cost. This investment was fully provided for during the last financial year. Labrador Ltd was written off for nil proceeds (investment cost of £0.3 million) and, as a result of balance sheet restructuring in Armstrong Craven, its £0.2 million loan note cost was written off for nil proceeds.

There continues to be liquidity in the public markets and the Investment Manager has made a select number of divestments within the quoted portfolio where share prices have rallied strongly since the initial fall during March.

Total AIM-traded sales for the year delivered proceeds of £13.8 million at an overall multiple of 2.1x cost. A full list of realisations can be found below. Notable examples are the partial realisations in Bioventix plc realising proceeds of £1.3 million at 16.1x cost multiple, Ideagen plc realising £5.4 million proceeds at 5.6x cost multiple and CentralNic Group plc realising proceeds of £2.4 million at 2.1x cost multiple. The Investment Manager also divested holdings in Companies where it did not believe in the long-term value potential. These include Synetics plc, that realised 0.6x cost, and STM Group, that realised 0.6x cost.

COVID-19 impact

The impact of COVID-19 and the lockdown restrictions faced by the UK continues to affect all of our lives. As I write this statement, the United Kingdom remains under Government restrictions, as a result of a second spike in the number of infections. We continue to monitor developments and the impact that changes in the economic outlook might have on our portfolio. However, disruption and market dislocation also provide opportunity and we have been encouraged by the follow-on investments that are being made to continue supporting the growth plans of our ambitious and innovative investee companies.

As reported in the half yearly report, the current pandemic has presented operational risks for the Company in respect of the resilience of third-party service providers. The Board has appreciated the response and controls-robustness of key service providers including the Investment Manager (Gresham House), the Registrar (Computershare) and Link Asset Services who provide both Company Secretarial support and fund administration to the Company. All key service providers have been able to implement their business continuity plans and continue to follow Government advice.

Dividends

The Board is pleased to declare a final dividend of 3.5p per share for the year to 30 September 2020 payable 5 March 2021. This is in addition to the 3.0p interim dividend paid in September and means that the total dividends for the year are 6.5p. This is a 8.8 per cent yield based on the opening NAV of 73.6p and is above the target policy of 7 per cent of the NAV at the start of the year.

The Company has good levels of realised reserves to fund future dividends and the Investment Manager continues to focus on consistently selling investments and generating realised profits across the portfolio.

Environmental, social and corporate governance ("ESG")

The Board has been encouraged to see the steps the Investment Manager has taken during 2020 to formalise its approach to sustainability. Policies and procedures have been put in place to ensure ESG factors and stewardship responsibilities are built into the management of new investments and a process of reviewing the existing portfolio will begin in 2021. Further details regarding Gresham House ESG policies can be found in the Strategic Report.

Fundraising

In August 2020 the Board announced its intention to raise new funds alongside Baronsmead Venture Trust to enhance the Company's resources available for new and follow on investments over the next two to three years. Consequently, in September 2020 the Company launched an offer for subscription to raise £20 million (before costs) with an additional £17.5 million overallotment facility available, as required. As at the date of this statement, there has been £14.8 million invested by shareholders and the offer remains open. We would like to thank existing shareholders for their continued support and to welcome new shareholders.

Annual General Meeting ("AGM")

The ongoing impact of the COVID-19 pandemic has led to the imposition of government restrictions on public gatherings. As a consequence, it has been necessary to make changes to the way in which we conduct our forthcoming AGM. In light of the UK government's current guidance on public gatherings, the Board has concluded that shareholders will not be permitted to attend this year's AGM in person.

The Directors appreciate the engagement with shareholders that takes place at the AGM and in order to maintain this have decided to live stream the AGM and Investment Manager's presentation. The AGM will take place at 1pm on 16 February 2021 and will include a question and answer section with the Board. There will also be a separate joint Investment Manager presentation with Baronsmead Venture Trust shareholders held at 11:30am on 16 February 2021.

Registration details for the live stream will be included in the Notice of AGM and on the Baronsmead website ( www.baronsmeadvcts.co.uk ). The live stream of the AGM and the Investment Manager's presentation will include a facility for questions to be submitted. However, in order to cover as many questions as possible, we would appreciate it if shareholders submit their questions to the Board before the meeting. Shareholders can submit questions up until noon on 15 February 2021 in the following ways:

By email: send your questions to [e-mail]

By telephone: contact Investor Relations on 020 3875 9862

Shareholders will not be able to vote on the resolutions to be proposed at the AGM on the day of the meeting. Shareholders are instead being asked to submit their votes by submitting their proxy electronically or by post as soon as possible. A Note of Annual General Meeting is being sent to shareholders separately to this Annual Report and any shareholder who wishes to submit questions to the Board or Investment Manager is encouraged to do so by following the instructions set out in that Notice and above.

We will continue to monitor the evolving impact of the COVID-19 pandemic and, if it becomes necessary to make changes to the proposed format of the AGM we will inform shareholders as soon as we are able. We would like to thank all shareholders for their co-operation and understanding in these challenging times.

Director changes

The financial year has seen a number of Director changes, with two Directors retiring from the Board; John Davies and Ian Orrock.

John served as a Director of Baronsmead VCT 5 from February 2006 until the Merger on 30 November 2016. He became interim Chairman of Baronsmead Second Venture Trust in November 2018, retiring at the February 2020 AGM. I succeeded John as Chairman and look forward to serving the Company over the coming years.

Ian Orrock joined the Board in 2010 and provided particularly valuable business experience following VCT legislation changes as the Company moved to investing in earlier stage companies.

We would like to thank both Directors for their huge contributions to the Company and wish them all the best for the future.

Following Ian's retirement on 1 May 2020, we are delighted to have appointed Tim Farazmand as a new, independent Non-Executive Director. Tim has spent 30 years in private equity and his last full-time role was as a Managing Director at Lloyds Development Capital. He brings a wide experience of supporting private companies through their challenges to ensure investment returns. He was previously Chairman of the British Venture Capital Association and a Chairman of the BVCA Impact Investment Advisory Group.

Board succession

The Board acknowledges that succession planning and refreshment of the Board remain a priority for the year ending 30 September 2021, during which there will be an emphasis on ensuring that the Board and its Committees continue to have a suitable combination of skills, experience and knowledge.

As announced to the market on 25 November 2020, Anthony Townsend will retire as a Non-Executive Director at the Company's forthcoming Annual General Meeting on 16 February 2021. The Board intends to appoint a new independent Non-Executive Director in Spring 2021 to ensure that there is the desired complement of four Directors.

The Board would like to express their appreciation to Mr Townsend for his hugely valuable contribution to the company and the Baronsmead family during his tenure; both as a directors and as a previous Chairman of the Company. The Board wish him well in the future.

Outlook

The impact of COVID-19 has been significant for us all, across both our personal and business lives. The Board was reassured by the swift reaction of the Investment Manager and the team's increased engagement with investee companies in the early stages of the pandemic. As the year progressed, your Company has resumed new investment activity and continues to support existing and new portfolio companies with the funds required to support growth initiatives. Several investments have also been successfully realised.

COVID-19 presents an unprecedented challenge to the country and economy. In the UK, the ongoing Brexit negotiations add an additional layer of economic uncertainty that may further slow any recovery. Companies within the portfolio currently employ well in excess of 15,000 people. The Board believes that Baronsmead Second Venture Trust has a role to play in rebuilding UK economic activity by continuing to back entrepreneurial, faster growing small and medium sized companies, with both capital and expertise. The Board remains focused on consistently delivering value for shareholders over the long-term by investing in high potential businesses and maintaining a well-diversified portfolio.

Sarah Fromson

Chairman

3 December 2020

MANAGER'S REVIEW

The financial year under review has been heavily impacted by the disruption and uncertainty caused by the COVID-19 pandemic. Despite the large-scale fiscal and monetary stimulus, the national lockdown and other restrictions led to a drastic decline in economic output in the months following the outbreak. Public markets have bounced back strongly since the initial drawdown in late March, driven by software, technology enabled services and healthcare and education businesses which to date have been more resilient. While we expect the economic environment to remain challenging heading into 2021, we have been encouraged by the way the management teams within our portfolio companies have responded to the pandemic and are increasingly looking to capitalise on the opportunities for growth which are opening up due to the marked shift in consumer behaviour and corporate priorities being driven by the pandemic.

The portfolio is well diversified, with exposure to 150 quoted and unquoted companies. Despite the disruption caused by COVID-19, the complementary mix of quoted and unquoted investments and weighting towards software, business services, healthcare and education companies, meant that the portfolio has delivered a resilient performance during the financial year with net asset total return increasing by 4.2 per cent in the year.

PORTFOLIO REVIEW

Overview

The net assets of £182 million were invested as follows:

Asset Class	NAV (£m)	% of NAV*	Number of Investees***		% return in the year**
Unquoted	47	25	32	(6)
AIM-traded companies	74	41	43	22
LF Gresham House UK Micro Cap Fund	24	13	47	5
LF Gresham House UK Multi Cap Income Fund	3	2	44	3
LF Gresham House UK Smaller Companies Fund	2	1	35	3
Liquid assets #	32	18	N/A	-
Totals	182	100	201	-

* By value as at 30 September 2020.

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

*** Includes investee companies with holdings by more than one fund. Total number of individual companies held is 150.

# Represents cash, OEICs and net current assets.

The tables below show the breakdown of new investments and realisations over the course of the year and below is commentary on some of the key highlights in both the unquoted and quoted portfolios.

Investment Activity - Unquoted and Quoted

During the year, £9.9 million was invested in 15 companies including five new additions to the portfolio and 10 follow on investments. Below are descriptions of the new investments made;

· Funding Xchange Ltd (unquoted) matches small businesses looking to borrow to lenders looking to lend, by holding the underwriting terms of the lenders so borrowers can receive instant decisions. It also sells its technology back into lenders enabling them to triage loan applications quicker and more efficiently, a proposition it calls Credit as a Service.

· Glisser Ltd (unquoted) is a virtual and hybrid event hosting platform with an integrated audience response system. The software integrates live streaming and instant content sharing to personal devices which improves the delegate experience and provides powerful event analytics.

· Rezatec Ltd (unquoted) is a geospatial data analytics company which applies its machine learning algorithms to a wide range of earth observation data, such as satellite imagery, soil, weather and topographic data. The product provides significant productivity benefits to the managers of forests and energy and water utilities assets.

· Clarilis Ltd (unquoted) is a legal document automation software and services provider, enabling both legal firms and in-house legal teams to automate legal contracts.

· Panthera Biopartners Ltd (unquoted) provides patient recruitment services to clinical research organisations, pharma and biotech companies. The primary focus is on phase III clinical trials for new drugs with similar therapeutic areas, such as chronic obstructive pulmonary disease (COPD), fatty liver disease and type 2 diabetes.

The Company's investment strategy is focused on companies operating in parts of the economy that are benefiting from long-term structural growth trends and in sectors where we have deep expertise. The amount of capital invested is matched to the scale, maturity and underlying risk profile of the company seeking investment. Typically, the initial investment is between £0.5 million and £3.0 million, but can be up to £5.0 million, with the expectation of selectively providing follow on funding to the companies that have executed well and have potential to continue to grow.

It has been encouraging to see a number of portfolio companies, both quoted and unquoted, seeking follow on funding from Baronsmead to support their growth plans, even during the disruption of the pandemic. The Company made additional investments into 10 portfolio companies, 5 quoted and 5 unquoted, during the year across a number of sectors. This provides strong validation of the investment strategy and demonstrates the improving visibility on future deployment and increasing conviction in the value creation opportunity as we build on our existing knowledge of these companies and our relationships with their management teams.

As Investment Manager we are actively engaged with each portfolio company working with the management teams to help them build long-term sustainable competitive advantage to accelerate growth. In addition to our in-house portfolio team, we have a network of operating partners who have extensive experience of supporting earlier stage investee companies and in delivering key business milestones to help unlock growth.

Unquoted Portfolio

Performance

The unquoted portfolio decreased in value by 6 per cent during the year. The impact of COVID-19 within the unquoted portfolio has been most significant across our multi-site nursery chain and casual dining restaurant assets, where the national lockdowns and social distancing requirements have resulted in closures and reduced restaurant capacity. Investments in TravelLocal, a consumer travel business, and Silkfred, a marketplace for independent womenswear fashion brands, also experienced a material softening in demand immediately post the lockdown.

The reduction in the value of investments, primarily as a result of COVID-19, has largely been offset by uplifts in the technology and services companies within the portfolio. These companies tend to have recurring or contracted revenue business models which provide good visibility over future revenues and cashflows. SecureCloud+ and Ten10 are good examples of businesses in the portfolio that have continued to grow strongly over the year.

As Investment Manager we are an engaged and supportive investor. We are in regular contact with the management teams within the portfolio, helping them to navigate through the rapidly changing environment by sharing insight and best practice from across the portfolio, but also ensuring they continue to tightly manage costs and closely monitor future cash availability. In general, the businesses within the portfolio have adapted quickly and we are now working closely with our management teams to identify opportunities to both accelerate growth and develop new revenue streams. Through a combination of our in-house portfolio company talent and technology functions alongside our extensive network of earlier stage, high growth company experts, we are well positioned to help the companies we invest in to develop and scale.

Divestments

During the year the unquoted portfolio returned £6.2 million in proceeds following the realisation of Glide at 2.6x cost in May. Glide has grown to become the UK's leading provider of fibre broadband and connectivity into difficult to serve markets such as multi-tenanted buildings and business parks. Baronsmead Second Venture Trust first invested in Glide in 2007 and after a period of strong growth sold down part of its stake in 2013. Over the course of the Company's involvement with Glide, the investment has delivered strong returns for shareholders of over 6.3x original cost.

Along with this successful realisation, the Company realised its investment in CR7 at a full loss. The investment in CR7 was fully provided for at 30 September 2019. There has also been a balance sheet restructuring at Armstrong Craven, to incentivise a new management team, which resulted in a partial loan note and share write off. However, through earlier interest and loan note repayments the investment in Armstrong Craven has already returned original cost.

After the year end the Company successfully completed the sale of its investment in Ten10. Through acquisitive and organic growth, Ten10 has become a market leading independent quality engineering and software testing consultancy. The transaction generated proceeds of £7.3 million and produced an overall investment return of 3.7x.

Quoted Portfolio (AIM-traded investments)

Performance

The quoted portfolio has performed well, increasing 22 per cent over the course of the year. This was driven by the larger and more established AIM holdings, with particular emphasis on those in resilient parts of the market where their businesses were benefiting from trends such as digital transformation that have been accelerated by the pandemic. Significant positive contributions came from: Cerillion, a software provider into the telecoms industry, which delivered strong results and material new contract wins; Wey Education, an online educational services provider, where enquiries and new business volumes were significantly enhanced by lockdown and increasing requirements for remote teaching; and Ideagen, a governance, risk and compliance software provider, that delivered resilient trading through the COVID-19 crisis period.

Detractors from performance were Everyman Media, a boutique cinema operator; and Dods Group, a media and events operator; both as a result of lockdown temporarily impacting their ability to operate. Entertainment AI, a digital marketing technology provider, was de-rated as a result of concerns about reductions to the value of online advertising inventory, despite delivering results in line with market expectations.

We closely monitor our AIM portfolio with a rolling programme of independent reviews of top AIM holdings and broadly continue to be positive on the long-term investment prospects of these companies. Many of the larger quoted investments have been long-term holdings. These companies are typically profitable, cash generative businesses with low levels of financial gearing and continue to have attractive long-term growth prospects.

Divestments

Proceeds totalled £13.8 million during the year following 7 full and 3 partial realisations. Castleton Technology plc was fully realised following a takeover by MRI Software, returning 3.6x cost, while Centralnic was also fully realised through market sales due to risks associated with increasing balance sheet leverage and the original investment thesis having largely played out, returning 2.1x cost. The opportunity to crystallise some profits was taken in two companies with proceeds of £1.3 million in Bioventix realising 16.1x cost and proceeds of £5.4 million in Ideagen realising 5.6x cost. Both companies remain within the portfolio as long-term holdings. The Manager also took the opportunity to fully exit holdings in Synectics plc and STM Group plc, long standing holdings that had underperformed, where the market conditions presented an opportunity to divest, realising returns of 0.6x each.

Collective Investment Vehicles

LF Gresham House UK Micro Cap Fund ("Micro Cap") had a positive return of 5 per cent over the year (2019: -7 per cent). At 30 September 2020, Baronsmead Second Venture Trust's cumulative £6.2 million investment was valued at £23.6 million (2019: £22.6 million). As at 30 September 2020, the Micro Cap fund held investments in 47 UK publicly listed companies.

The investment in LF Gresham House UK Multi Cap Income Fund ("Multi Cap") has had a modest increase of 3 per cent over the year (2019: 1 per cent). At 30 September 2020, Baronsmead Second Venture Trust's cumulative £2.5 million investment was valued at £3.1 million (2019: £3.0 million). As at 30 September 2020, the Multi Cap fund held investments in 44 UK publicly listed companies.

The investment in LF Gresham House UK Smaller Companies Fund ("Smaller Companies") has also had a modest increase of 3 per cent over the year (2019:1 per cent). At 30 September 2020, Baronsmead Second Venture Trust's investment was valued at £2.6 million (2019: £2.5million). As at 30 September 2020 the Smaller Companies fund held investments in 35 UK publicly listed companies.

The UK Micro Cap and Multi Cap funds are both highly rated funds by independent ratings agencies. Each fund has performed well on an absolute basis and also relative to their respective peer groups. The UK Micro Cap Fund has been consistently top quartile within the IA UK Smaller Companies sector and is the Fourth best performing fund over the past 10 years. The UK Multi Cap Fund has been the top performing fund within the IA UK Equity Income sector since launch in June 2017. The Manager believes that the Company's investments in these funds provides shareholders with additional diversification, as well as access to the potential returns available from a larger and more established group of companies that fall within the Manager's core area of expertise.

Liquid assets (cash and near cash)

Baronsmead Second Venture Trust plc had cash and liquidity OEICs of approximately £33.2 million at the year-end. This asset class is conservatively managed to take minimal or no capital risk.

Outlook

The ongoing economic impact of the COVID-19 pandemic is likely to have ramifications across companies and sectors throughout the coming financial year and beyond. UK and global political and macro-economic uncertainties are also likely to persist which may cause market and economic volatility. Whilst these factors create challenges for companies and for investors they also present opportunities for entrepreneurial management teams to develop and grow their businesses.

We believe that the Company's diverse portfolio of companies with strong fundamentals, in aggregate can deliver resilience and growth moving forward. Baronsmead's unique positioning among Venture Capital Trusts with diversification across public and private markets and by business maturity, sector and business model gives us confidence in the ability of the Company to produce attractive and consistent long-term investment returns which will underpin attractive dividends for shareholders over the cycle.

Gresham House Asset Management Ltd

Investment Manager

3 December 2020

INVESTMENTS IN THE YEAR

Company	Location	Sector	Activity	Book cost £'000
Unquoted investments New
Clarilis Ltd	Birmingham	TMT	Legal document automation software	1,8 20
Rezatec Ltd	Oxfordshire	TMT	A geospatial data analytics business selling into the forestry and utilities sectors worldwide	1,620
Funding Xchange Ltd	London	Business Services	SME lending marketplace	795
Glisser Ltd	London	Business Services	Audience response software	662
Panthera Biopartners Ltd	Leeds	Healthcare & Education	Recruitment services for clinical trials	260
Follow on
Storyshare Holdings Ltd	London	TMT	Employee engagement platform	530
Custom Materials Ltd	London	TMT	Retailer of customisable products	484
Yappy Ltd	Manchester	Consumer Markets	Supplier of customisable pet products	424
Tribe Digital Holdings Pty Ltd	London	TMT	Influencer marketing platform	279
Munnypot Ltd	West Sussex	TMT	Automated online investment platform	273
Total unquoted investments				7,147
AIM-traded Investments Follow on
Rosslyn Data Technologies plc	London	TMT	Data analytics software platform	880
PCI-PAL plc	London	TMT	Secure payment services provider	850
One Media iP Group plc	Buckinghamshire	TMT	Content acquisition and distribution	732
Eden Research plc	Gloucestershire	Business S ervices	Developer of biological fungicides and bio equivalents	275
Fusion Antibodies plc	Belfast	Healthcare & Education	Development of antibodies for both therapeutic and diagnostic applications	110
Total AIM-traded investments				2,847
Total investments in the year				9,994

TMT - Technology, Media and Telecommunications
 

REALISATIONS IN THE YEAR

Company		First investment date	Original book cost † £'000	Proceeds‡ £'000	Overall multiple return*
Unquoted realisations
Glide Ltd	Trade sale	May 07	2,500	6,214	6.3
CR7 Services Ltd**	Write Off	Aug 14	2,209	0	0
Armstrong Craven Ltd	Restructuring	Jun 13	241	0	1.1
Labrador Ltd**	Write Off	Aug 18	263	0	0
Total unquoted realisations			5,213	6,214
AIM-traded realisations
Ideagen plc	Market sale	Jan 13	959	5,379	5.6
Synnovia plc (formerly Plastics Capital plc)	Takeover	Nov 07	2,539	3,182	1.3
CentralNic Group plc	Market sale	Jun 15	1,122	2,373	2.1
Bioventix plc	Market sale	Jun 13	82	1,325	16.1
Castleton Technology plc	Takeover	Nov 14	247	887	3.6
STM Group plc	Market sale	Mar 08	466	284	0.6
Synectics plc	Market sale	Jan 04	481	268	0.6
APC Technology Group plc#	Takeover	Sep 14	118	33	0.3
Brady plc	Market sale	Dec 10	653	22	0.0
MXC Capital Ltd	Repurchase	May 15	6	6	0.0
Total AIM-traded realisations			6,673	13,759
Total realisations in the year			11,886	19,973
‡ Proceeds at time of realisation including interest. * Includes interest/dividends received, loan note redemptions and partial realisations accounted for in prior periods. # APC shares were received as part of an exchange; book cost of APC shares when received is listed here. † Residual book cost at realisation date ** Investments in CR7 Services Ltd and Labrador Ltd were fully provided for at 30 September 2019.

STRATEGIC REPORT

Ten Largest Investments

The top ten investments by current value at 30 September 2020 illustrate the diversity of investee companies within the portfolio. For consistency across the top ten and based on guidance from the AIC, data extracted from the last set of published audited accounts is shown in the tables below. However, this may not always be representative of underlying financial performance for several reasons. Published accounts lodged at Companies House may be out of date and the Manager works from up to date management accounts and has access to draft but unpublished annual audited accounts prepared by the companies. In addition, pre-tax profit in statutory accounts is often not a representative indicator of underlying profitability as it can be impacted by, for example, deductions of non-cash items such as amortisation that relate to investment structures rather than operating performance.

1.   Cerillion plc

London

Quoted

www.cerillion.com    

All funds managed by Gresham House

First investment: November 2015

Total original cost: £4,000,000

Total equity held: 17.8%

Baronsmead Second Venture Trust only

Original cost: £2,200,000

Valuation: £8,858,000

Valuation basis: Bid Price

% of equity held: 9.8%

Year ended 30 September

	2020	2019
	£ million	£ million
Sales:	20.8	18.8
Pre-tax profits:	2.6	2.4
Net Assets:	16.0	15.5
No. of Employees:	n/a*	203

Source: Cerillion plc, Annual Report and Accounts 30 September 2020.

*At the date of issue of this Annual Report, this information is not publicly available.

2. Carousel Logistics Ltd

Sittingbourne

Unquoted

www.carousel.eu

All funds managed by Gresham House

First investment: October 2013

Total original cost: £4,245,000

Total equity held: 26.7%

Baronsmead Second Venture Trust only

Original cost: £2,336,000

Valuation: £7,930,000

Valuation basis: Earnings Multiple

Income recognised in the year: £168,000

% of equity held: 14.7%

Voting rights: 15.8%

Year ended 31 December

	2019	2018
	£ million	£ million
Sales:	54.4	38.5
Pre-tax profits	(2.3)	(1.6)
Net Assets:	(6.4)	(2.1)
No. of Employees:	283	124

Source: Carousel Logistics Holdings Limited, Annual Report and Financial Statement 31 December 2019.

3. Ten10 Group Ltd

London

Unquoted

www.ten10.com  

All funds managed by Gresham House

First investment: February 2015

Total original cost: £4,237,000

Total equity held: 20.8%

Baronsmead Second Venture Trust only

Original cost: £2,331,000

Valuation: £6,734,0007,250,000

Valuation basis: Sale proceeds

Income recognised in the year: £636,000

% of equity held: 11.4%

Voting rights: 10.3%

Year ended 30 April

	2020	2019
	£ million	£ million
Sales:	26.5	24.9
Pre-tax profits:	(0.3)	(0.4)
Net Assets:	(4.6)	(0.1)
No. of Employees:	248	228

Source: Ten10 Group Limited, Annual Report and Financial Statements 30 April 2020.

4. Netcall plc

Hertfordshire

Quoted

www.netcall.com

All funds managed by Gresham House

First investment: July 2010

Total original cost: £4,354,000†

Total equity held: 22.8%

Baronsmead Second Venture Trust only

Original cost: £2,616,000

Valuation: £5,473,000

Valuation basis: Bid Price

Income recognised in the year: £78,000

% of equity held: 10.2%

Voting rights: 10.2%

Year ended 30 June

	2020	2019
	£ million	£ million
Sales:	25.1	22.9
Pre-tax profits:	0.5	0.8
Net Assets:	22.9	21.9
No. of Employees:	230	230

Source: Netcall plc, Annual Report and Accounts, 30 June 2020.

† Excludes collective investment vehicles.

5. Ideagen plc

Nottinghamshire

Quoted

www.ideagen.com  

All funds managed by Gresham House

First investment: January 2013

Total original cost: £1,309,000

Total equity held: 2.1%

Baronsmead Second Venture Trust only

Original cost: £720,000

Valuation: £5,133,000

Valuation basis: Bid Price

Income recognised in the year: £13,000

% of equity held: 1.2%

Voting rights: 1.2%

Year ended 30 April

	2020	2019
	£ million	£ million
Sales:	56.6	46.7
Pre-tax profits:	(0.1)	1.4
Net Assets:	76.9	73.7
No. of Employees:	537	451

Source: Ideagen plc, Annual Report and Accounts, 30 April 2020.

6. IDOX plc

Reading

Quoted

www.idoxgroup.com

All funds managed by Gresham House

First investment: May 2002

Total original cost: £1,641,000

Total equity held: 3.9%

Baronsmead Second Venture Trust only

Original cost: £1,028,000

Valuation: £5,024,000

Valuation basis: Bid price

Income recognised in the year: £Nil

% of equity held: 2.5%

Voting rights: 2.5%

Year ended 31 October

	2019	2018
	£ million	£ million
Sales:	65.5	66.4
Pre-tax profits	(0.0)	(30.2)
Net Assets:	44.6	47.9
No. of Employees:	671	804

Source: IDOX plc, Annual Report and Accounts, 31 October 2019.

7. Bioventix Plc

Surrey

Quoted

www.bioventix.com  

All funds managed by Gresham House

First investment: June 2013

Total original cost: £562,000†

Total equity held: 4.8%

Baronsmead Second Venture Trust only

Original cost: £309,000

Valuation: £4,711,000

Valuation basis: Bid Price

Income recognised in the year: £209,000

% of equity held: 2.3%

Voting rights: 2.3%

Year ended 30 June

	2020	2019
	£ million	£ million
Sales:	10.3	9.3
Pre-tax profits:	8.2	7.0
Net Assets:	12.5	10.8
No. of Employees:	16	16

Source: Bioventix plc, Annual Report and Financial Statements 30 June 2020.

† Excludes collective investment vehicles.

8. Custom Materials Limited (trading as Moteefe)

London

Unquoted

www.moteefe.com  

All funds managed by Gresham House

First investment: March 2017

Total original cost: £4,431,000

Total equity held: 14.1%

Baronsmead Second Venture Trust only

Original cost: £2,436,000

Valuation: £4,593,000

Valuation basis: Last external funding round

Income recognised in the year: £Nil

% of equity held: 7.7%

Voting rights: 7.7%

Year ended 31 December

	2018	2017
	£ million	£ million
Net Assets:	1.9	0.5

The Company has received an extension to 31 December 2020 for the filing of its financial statements for the year ended 31 December 2019. A full set of accounts is not publicly available

Source: Custom Materials Ltd, Unaudited Financial Statements 31 December 2018.

9. Pho Holdings Ltd

London

Unquoted

www.phocafe.co.uk  
 

All funds managed by Gresham House

First investment: July 2012

Total original cost: £4,402,000

Total equity held: 28.6%

Baronsmead Second Venture Trust only

Original cost: £2,422,000

Valuation: £4,016,000

Valuation basis: Earnings Multiple

Income recognised in the year: £Nil

% of equity held: 15.8%

Voting rights: 15.8%

Year ended 24 February

	2019*	2018**
	£ million	£ million
Sales:	34.4	30.5
Pre-tax profits:	(1.5)	(1.0)
Net Assets:	2.1	3.5
No. of Employees:	678	605

* 52 week period ended 24 February 2019.

** 52 week period ended 25 February 2018.

Source: Pho 2012 Ltd, Directors' Report and Financial Statements 24 February 2019.

10. Inspired Energy plc

Lancaster

Quoted

www.inspiredenergy.co.uk  

All funds managed by Gresham House

First investment: November 2011

Total original cost: £1,437,000†

Total equity held: 14.8%

Baronsmead Second Venture Trust only

Original cost: £861,000

Valuation: £3,832,000

Valuation basis: Bid Price

Income recognised in the year: £119,000

% of equity held: 2.8%

Voting rights: 2.8%

Year ended 31 December

	2019	2018
	£ million	£ million
Sales:	49.3	32.7
Pre-tax profits:	4.8	4.2
Net Assets:	49.9	45.3
No. of Employees:	520	332

Source: Inspired Energy plc, Annual Report and Accounts 2019.

† Excludes collective investment vehicles.

PRINCIPAL RISKS & UNCERTAINTIES

The Board has carried out a robust assessment of the principal & emerging risks and uncertainties facing the Company and has included below an assessment of the appropriate measures taken in order to mitigate these risks as far as practicable. There is an ongoing process for identifying, evaluating and managing these risks which is part of the governance framework detailed further in the Corporate Governance section of the full Annual Report.

A key emerging risk now facing the Company is that of ESG, given its regulatory, operational and potentially reputational implications if not properly addressed. In order to address this emerging risk when looking to make a new investment the Manager will use an ESG decision tool to identify any material ESG risks that need to be managed and mitigated. For further detail see below.

The Board considers the COVID-19 pandemic and Brexit to be factors which exacerbate existing risks, rather than new emerging risks. Their impact is considered within the relevant risks below.

Principal Risk	Context	Specific risks	Possible impact	Mitigation
Loss of approval as a Venture Capital Trust	The Company must comply with section 274 of the Income Tax Act 2007 which enables its investors to take advantage of tax relief on their investment and on future returns.	Breach of any of the rules enabling the Company to hold VCT status could result in the loss of that status.	The loss of VCT status would result in Shareholders who have not held their shares for the designated holding period having to repay the income tax relief they had already obtained and future dividends and gains would be subject to income tax and capital gains tax.	The Board maintains a safety margin on all VCT tests to ensure that breaches are unlikely to be caused by unforeseen events or shocks. The Investment Manager monitors all of the VCT tests on an ongoing basis and the Board reviews the status of these tests on a quarterly basis. Specialist advisors review the tests on a bi-annual basis and report to the audit committee on their findings.
Legislative	VCTs were established in 1995 to encourage private individuals to invest in early stage companies that are considered to be risky and therefore have limited funding options. In return the state provides these investors with tax reliefs which fall under the definition of state aid.	A change in government policy regarding the funding of small companies or changes made to VCT regulations to comply with EU State Aid rules could result in a cessation of the tax reliefs for VCT investors or changes to the reliefs that would make them less attractive to investors.	The Company might not be able to maintain its asset base leading to its gradual decline and potentially an inability to maintain either its buy back or dividend policies.	The Board and the Investment Manager engage on a regular basis with HMT and industry representative bodies to demonstrate the cost benefit of VCTs to the economy in terms of employment generation and taxation revenue. In addition, the Board and the Investment Manager have considered the options available to the Company in the event of the loss of tax reliefs to ensure that it can continue to provide a strong investment proposition for its Shareholders despite the loss of tax reliefs.
Investment performance	The Company invests in small, mainly UK based companies, both unquoted and quoted. 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 and hence tend to be riskier than larger businesses. The COVID-19 pandemic has had a significant impact on the performance of the consumer markets sector.	Investment in poor quality companies with the resultant risk of a high level of failure in the portfolio.	Reduction in both the capital value of investors shareholdings and in the level of income distributed.	The Company has a diverse portfolio where the cost of any one investment is typically less than 5 per cent of NAV thereby limiting the impact of any one failed investment. The Investment Management team has a strong and consistent track record over a long period. The Investment Manager undertakes extensive due diligence procedures on every new investment and reviews the portfolio composition maintaining a wide spread of holdings in terms of financing stage and industry sector. In light of the COVID-19 pandemic, the Investment Manager has undertaken a thorough risk review of the portfolio companies which has been reviewed by the Board. The Investment Manager has engaged with management teams to develop plans to mitigate the impact of the current crisis.
Economic, political and other external factors	Whilst the Company invests in predominantly UK businesses, the UK economy relies heavily on Europe as one of its largest trading partners. This, together with the increase in globalisation, means that economic unrest and shocks in other jurisdictions, as well as in the UK, can impact on UK companies, particularly smaller ones that are more vulnerable to changes in trading conditions. In addition the potential impact of leaving the European Union remains uncertain. The risks posed by the COVID-19 pandemic impact on all the economic, political and other external factors the Company faces.	Events such as fiscal policy changes, Brexit, economic recession, movement in interest or currency rates, civil unrest, war or political uncertainty or pandemics can adversely affect the trading environment for underlying investments and impact on their results and valuations.	Reduction in the value of the Company's assets with a corresponding impact on its share price may result in the loss of investors through buy backs and may limit its ability to pay dividends.	The Company invests in a diversified portfolio of companies across a number of industry sectors, which provides protection against shocks as the impact on individual sectors can vary depending upon the circumstances. In addition, the Investment Manager uses a limited amount of bank gearing in its investments which enables its investments to continue trading through difficult economic conditions. The Board monitors and reviews the position of the Company, ensuring that adequate cash balances exist to allow flexibility. The Board reviews the make up and progress of the portfolio each quarter to ensure that it remains appropriately diversified and funded.
Regulatory & Compliance	The Company is authorised as a self managed Alternative Investment Fund Manager ("AIFM") under the Alternative Investment Fund Managers Directive ("AIFMD") and is also subject to the Prospectus and Transparency Directives. It is required to comply with the Companies Act 2006 and the UKLA Listing Rules.	Failure of the Company to comply with any of its regulatory or legal obligations could result in the suspension of its listing by the UKLA and/or financial penalties and sanction by the regulator or a qualified audit report.	The Company's performance could be impacted severely by financial penalties and a loss of reputation resulting in the alienation of Shareholders, a significant demand to buy back shares and an inability to attract future investment. The suspension of its shares would result in the loss of its VCT taxation status and most likely the ultimate liquidation of the Company.	The Board and the Investment Manager employ the services of leading regulatory lawyers, sponsors, auditors and other advisers to ensure the Company complies with all of its regulatory obligations. The Board has strong systems in place to ensure that the Company complies with all of its regulatory responsibilities. The Investment Manager has a strong compliance culture and employs dedicated compliance specialists within its team who support the Board in ensuring that the Company is compliant. The Board is being kept appraised of changes in the regulatory environment caused by the COVID-19 pandemic. The Company Secretary provides an update at each Board meeting.
Operational	The Company relies on a number of third parties, in particular the Investment Manager, to provide it with the necessary services such as registrar, sponsor, custodian, receiving agent, lawyers and tax advisers.	The risk of failure of the systems and controls of any of the Company's advisers including a cyber attack leading to an inability to service shareholder needs adequately, to provide accurate reporting and accounting and to ensure adherence to all VCT legislation rules.	Errors in shareholders' records or shareholdings, incorrect marketing literature, non compliance with listing rules, loss of assets, breach of legal duties and inability to provide accurate reporting and accounting all leading to reputational risk and the potential for litigation. A cyber attack or data breach could lead to loss of sensitive shareholder data resulting in a breach and liability under GDPR.	The Board has appointed an audit committee who review the internal control ("ISAE3402") and/or internal audit reports from all significant third party service providers, including the Investment Manager, on a bi-annual basis to ensure that they have strong systems and controls in place including Business Continuity Plans and matters relating to cyber security. The Board regularly reviews the performance of its service providers to ensure that they continue to have the necessary expertise and resources to provide a high class service and always where there has been any changes in key personnel or ownership. The operational requirements of the Company, including from its service providers, have been subject to rigorous testing (including remote working and virtual meetings) as to their application during the COVID-19 pandemic, where increased use of out of office working and online communication has been required. To date the operational arrangements have proven robust.

The financial risks faced by the Company are covered within the Notes to the Financial Statements below.

Sustainable Investing

Environmental, Human Rights, Employee, Social and Community Issues

The Company seeks to conduct its affairs responsibly and the Manager is encouraged to consider environmental, human rights, social and community issues, where appropriate, when making investment decisions and the Board will continue to monitor the Manager's progress in these areas.

The Company is required, by company law, to provide details of environmental (including the impact of the Company's business on the environment), employee, human rights, social and community issues; including information about any policies it has in relation to these matters and the effectiveness of these policies. The Company does not have any employees and as a result does not maintain specific policies in relation to these matters.

Whilst the requirements under c company l aw to detail ESG matters are not directly applicable to the Company, the Board is conscious of its potential impact on the environment as well as its social and corporate governance responsibilities. The Manager has presented its ESG strategy to the Board and has started to provide regular updates to the Board regarding the ESG responsibilities of its portfolio of investee companies .

Sustainable Investment by the Manager

Gresham House is committed to sustainable investment as an integral part of its business strategy. During 2020, Gresham House has taken steps to formalise its approach to sustainability and has put in place several policies and processes to ensure ESG factors and stewardship responsibilities are built into asset management across all funds and strategies, including venture capital trusts.

Policies and processes

Gresham House has published its Sustainable Investing Policy along with asset specific policies, including the Public Equity Policy and the Private Equity Policy which are on the Gresham House website ( greshamhouse.com ), which cover Gresham House's sustainable investment commitments, how the investment processes meet these commitments and the application of the sustainable investment framework.

The Gresham House Board and Management Committee assess adherence to the commitments in the Sustainable Investment Policies on an annual basis.

Sustainable Investing Committee

The Sustainable Investing Committee (SIC) was formed at the start of 2020. It meets monthly and drives

sustainability related deliverables, whilst providing a forum to share best practice, ideas and education. The Committee is chaired by the Director of Sustainable Investment and has representation from the Gresham House Management Committee, each asset division, sales and marketing.

Embedding ESG analysis

ESG analysis is embedded into the investment process by the Manager in order to build and protect long-term value for investors.

A framework based on ten key ESG themes is used to structure analysis, monitor and report on ESG risks and opportunities across the lifecycle of investments.

ESG Decision Tool

The ten themes are the basis of the ESG Decision Tools which are used to support the Manager in identifying material ESG risks that need to be managed and mitigated, and to help shape the due diligence process for each investment.

The Manager believes the "G" (Governance) of ESG is the most important factor in its investment processes for public and private equity. Board composition, governance, control, company culture, alignment of interests, shareholder ownership structure, remuneration policy etc. are important elements that will feed into the Manager's analysis and the company valuation.

The " E " and " S " (Environmental and Social) are assessed as risk factors during due diligence to eliminate companies that face environmental and social risks that cannot be mitigated through engagement and governance changes.

Where material ESG risks are identified, these are reviewed by the Manager and a decision on how to proceed is documented. The Manager will then proactively follow up with the investee company management team and ensure appropriate corrective and preventative action is taken and any material issues or incidents are recorded by the Manager.

Stewardship Responsibilities

As an active investor, the Manager acts as a long-term steward of the assets in which it invests. Active ownership responsibilities include engagement and voting, which are used to protect and create value. Gresham House has published its Engagement and Voting Policy on its website which sets out the Manager's approach and explains how integrated these activities are to its business practices and investment processes.

Engagement

The Manager's investment philosophy means that it is an actively engaged shareholder. The Manager's assessments of management, b oard and governance form a critical part of the investment case, which necessitates that it works with companies on strategy, M&A, remuneration and related matters, from the outset of the holding period onwards. The Manager encourages an open and honest dialogue with the companies as this is an essential part of effective stewardship.

The Manager will meet face-to-face with the management team of a publicly listed company at least twice a year, and more frequently when it owns a material stake of a company. The Manager will generally work more closely with the management teams of private equity investments and meet on a more frequent basis. These meetings form the basis for the ongoing monitoring of a company's strategy, financial performance and ESG considerations.

Defining engagement objectives

The Manager will usually identify and agree strategic milestones that it expects a company to deliver on over the holding period. The Manager will typically identify three or four key strategic milestones that are bespoke to the organisation and its business development, aiming to keep the directors focused and ensure continued progress.

Objectives may change over time depending on several factors, including business priorities, market forces and stakeholder considerations. Example of engagement objectives include:

· Board composition

· Improvements to governance arrangements

· Product or geographic expansion or variance, including due to ESG related market forces

· Staff retention and reduction of absence rates

· Implementing compliance programmes with forthcoming ESG legislation

· Improvements to reporting, including ESG factors

The identified objectives provide a framework which forms the basis of the Manager's discussions with companies during regularly scheduled engagements.

Voting

Voting is an important part of the Manager's investment strategy and Gresham House is a signatory to the UK Stewardship Code and the Principles of Responsible Investment ( " PRI " ). The Manager devotes the necessary research, management time and resources to ensuring it makes thoughtful voting decisions.

Voting decisions are based on the Manager's view of the course of action which will be in the best interests of the Company. Votes are informed by various sources including; procedures, research, engagement with the company, discussions with other stakeholders and advisers, internal discussions and consultations, and other relevant information.

Voting decisions

The Manager does not have a set policy defining how voting decisions should be made on specific items, but has set the following guidelines:

1.  Authority to allot shares - policy to vote against anything over 33 per cent.

2.  Disapplication of pre-emption rights - policy to vote against anything over 10 per cent.

3.  Authorise Company to purchase own shares - policy to vote against anything over 10 per cent.

4.  Political donations - policy to vote against all political donations.

Proxy voting providers

The Manager does not use any proxy voting advisory services, but will usually use proxy voting services to deliver voting decisions to the companies it invests in.

Stock lending

The Manager does not engage in stock lending, ensuring it maintains control over how votes are cast.

Voting against management

If the Manager plans to vote against the company decision, it will engage with the company in advance, explain the reasons for voting against management and look for ways to avoid that if possible. If a satisfactory   outcome is not reached through this active dialogue with the company, the Manager will typically tell the company in advance of its intention to abstain or vote against management and clarify the reasons grounding such intention.

Voting evidence

In the year to 30 September 2020 the Manager voted on 409 resolutions with 92 per cent votes in favour, 6 per cent votes against and 2 per cent abstain.

Votes against included a public company where we objected against a political donation .

Applying the Business Model

This section of the Strategic Report sets out the practical steps that the Board has taken in order to apply the business model, achieve the investment objective and adhere to the investment policy. The investment policy is designed to ensure that the Company continues to qualify , and is approved , as a VCT by HM Revenue and Customs.

Investing in the Right Companies

Investments are primarily made in companies which are substantially based in the UK, although many of these investees may have some trade overseas. 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.

The Board has delegated the management of the investment portfolio to Gresham House. The Investment Manager has adopted a 'top-down, macro economic and sector-driven' approach to identifying and evaluating potential investment opportunities, by assessing a forward view of firstly the broader 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 policy is not to invest in any of the following areas: human cloning; arms/munitions or adult content.

The Manager's Review above provides a review of the investment portfolio and of market conditions during the year, including the main trends and factors likely to affect the future development, performance and position of the business.

Risk is spread by investing in a number of different businesses within different qualifying industry sectors using a mixture of securities. The maximum the Company will invest in a single company (including a collective investment vehicle) is 15 per cent of its investments by value of its investments calculated in accordance with Section 278 of the Income Tax Act 2007 (as amended) ("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.

The Company invests in a range of securities including, but not limited to, ordinary and preference shares, loan stocks, convertible securities and permitted non qualifying investments as well as cash. Unquoted investments are usually structured as a combination of ordinary shares and loan stocks or preferred shares, while AIM-traded investments are primarily held in ordinary shares. Pending investment in VCT qualifying investments, the Company's cash and liquid funds are held in permitted non qualifying investments.

VCT Status

Compliance with the required VCT rules and regulations is considered when all investment decisions are made. Internally, this is monitored on a continuous basis and it is also reviewed by PwC every six months to ensure ongoing compliance. PwC have been appointed by the Company to advise on compliance with VCT requirements, including evaluation of investment opportunities as well as appropriate and regular review of the portfolio. Although PwC works closely with the Investment Manager, they report directly to the Board.

The principal tests are summarised below. Throughout the year ended 30 September 2020, and at the date of this report, the Company continued to meet these tests:

1)  To ensure that the VCT's income in the period has been derived wholly or mainly (70 per cent plus) from shares or securities;

2)  To ensure that the VCT has not retained more than 15 per cent of its income from shares and securities;

3)  To ensure that the VCT has not made a prohibited payment to Shareholders derived from an issue of shares since 6 April 2014;

4)  To ensure that at least 80 per cent by value of the VCT's investments has been represented throughout the period by shares or securities comprised in qualifying holdings of the VCT;

5)  To ensure that at least 70 per cent by value of the VCT's qualifying holdings has been represented throughout the period by holdings of eligible shares;

6)  To ensure that no investment in any company has represented more than 15 per cent by value of the VCT's investments at the time of investment;

7)  To ensure that the VCT's ordinary capital has throughout the period been listed on a regulated European market;

8)  To ensure that the VCT has not made an investment in a company which causes it to receive more than the permitted investment from State Aid sources;

9)  To ensure that since 17 November 2015, the VCT has not made an investment in a company which exceeds the maximum permitted age requirement;

10)  To ensure that since 17 November 2015, funds invested by the VCT in another company have not been used to make a prohibited acquisition; and

11)  To ensure that since 6 April 2016, the VCT has not made a prohibited non-qualifying investment.

Appointment of the Manager

The Board expects the Manager to deliver a performance which meets the objective of achieving long-term investment returns, including tax free dividends. A review of the Company's performance during the financial year, the position of the Company at the year end and the outlook for the coming year is contained within the Chairman's Statement above. The Board assesses the performance of the Manager in meeting the Company's objective against the KPIs highlighted in the full Annual Report.

Continuing Appointment of the Manager

The Board keeps the performance of the Investment Manager under continual review. The Management Engagement and Remuneration Committee, comprising all Directors, conducts an annual review of the Manager's performance and makes a recommendation to the Board about its continuing appointment.

It is considered that the Manager has executed the Company's investment strategy according to the Board's expectations. Accordingly, the Directors believe that the continuing appointment of Gresham House Asset Management Limited as the Investment Manager of the Company, on the terms agreed, is in the best interests of the Company and its Shareholders as a whole.

The management agreement

Under the management agreement, the Manager receives a fee of 2.5 per cent per annum of the net assets of the Company. In addition, the Manager is responsible for providing all secretarial, administrative and accounting services to the Company for an additional fee. The Manager has appointed Link Alternative Fund Administrators Limited to provide these services to the Company on its behalf. The Company is responsible for paying the fee charged by Link Alternative Fund Administrators Limited to the Manager in relation to the performance of these services.

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 30 September 2020 was 2.7 per cent.

The management agreement may be terminated at any date by either party giving 12 months' notice of termination and, if terminated, the Manager is only entitled to the management fees paid to it and any interest due on unpaid fees.

Performance fees

A performance fee is payable to the Manager when the total return on net proceeds of the ordinary shares exceeds 8 per cent per annum (simple). To the extent that the total return exceeds the threshold over the relevant period then a performance fee of 10 per cent of the excess will be paid to the Manager. The amount of any performance fee which is paid in an accounting period is capped at 5 per cent of net assets.

No performance fee is payable for the year to 30 September 2020 (2019: £nil).

Management retention

The Board is keen to ensure that the Manager continues to have one of the best investment teams in the VCT and private equity sector. A VCT incentive scheme was introduced in November 2004 under which members of the Manager's investment team invest their own money into a proportion of the ordinary shares of each eligible unquoted investment made by the Baronsmead VCTs. The Board regularly monitors the VCT incentive scheme arrangements but 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.

Executives have to invest their own capital in every eligible unquoted transaction and cannot decide selectively which investments to participate in. In addition, the VCT incentive scheme only delivers a return after each VCT has realised a priority return built into the structure. The shares held by the members of the VCT incentive scheme in any portfolio company can only be sold at the same time as the investment held by the Baronsmead VCTs is sold. 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 VCT incentive scheme.

Prior to January 2017, executives participating in the VCT incentive scheme subscribed jointly for a proportion (12 per cent) of the ordinary shares (but not the prior ranking financial instruments) available to the Baronsmead VCTs in each eligible 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. With effect from January 2017, an additional limb was added to the VCT incentive scheme to accommodate the increasing number of "permanent equity" investments being made by the Baronsmead VCTs. "Permanent equity" investments are those in which the Baronsmead VCTs hold a relatively lower proportion of prior ranking instruments (if any at all) and a higher proportion of permanent equity or ordinary shares. This means that there are fewer prior ranking instruments yielding a priority return for the Baronsmead VCTs before any gain accrues to the ordinary shares, hence this additional limb to create a hurdle described below. The cut off to define a "permanent equity" investment is one where permanent equity is greater than 25 per cent of the total or where permanent equity is greater than £250,000.

Under the terms of the amended VCT incentive scheme, in circumstances where the Baronsmead VCTs hold a sufficient number of prior ranking financial instruments (a "Traditional Structure"), the terms are identical to those set out above. However, in circumstances where the Baronsmead VCTs make a "permanent equity" investment, the executives participating in the incentive scheme are required to co-invest pari passu alongside the Baronsmead VCTs for a proportion (currently 0.75 per cent) of all instruments available to the Baronsmead VCTs and they also receive an option over a further proportion (currently 12 per cent) of the ordinary shares available to the Baronsmead VCTs. The ordinary shares can only be sold and the option can only be exercised by the scheme participants when the investment held by the Baronsmead VCTs is sold. The option exercise price has a built in hurdle rate to ensure that the options are only "in the money" if the Baronsmead VCTs achieve a good return (equivalent to the priority return they would have to achieve prior to any value accruing to the ordinary shares in a Traditional Structure).

Since the formation of the scheme in 2004, 86 executives have invested a total of £1,049,000 in 72 companies. At 30 September 2020, 45 of these investments have been realised generating proceeds of £350,000,000 for the Baronsmead VCTs and £19,000,000 for the VCT incentive scheme. For Baronsmead Second Venture Trust the average money multiple on these 45 realisations was 1.7x cost. Had the VCT incentive shares been held instead by the Baronsmead VCTs, the extra return to Shareholders would have been the equivalent of 3.9p a share over 16 years (based on the current number of shares in issue). The Board considers this cost to retain quality people to be in the best interests of Shareholders.

Advisory and Directors' fees

During the year, Gresham House Asset Management Limited received £204,000 (2019: £121,000) advisory fees, £360,000 (2019: £232,000) directors' fees for services provided to companies in the investment portfolio and incurred abort costs of £11,000 (2019: £26,000) with respect to investments attributable to Baronsmead Second Venture Trust plc.

Alternative Investment Fund Manager's Directive ("AIFMD")

The AIFMD regulates the management of alternative investment funds, including VCTs. On 22 July 2014 the Company was registered as a Small UK registered Alternative Investment Fund Manager under the AIFMD.

Viability Statement

In accordance with principle 21 of the Association of Investment Companies Code of Corporate Governance ("AIC Code"), the Directors have assessed the prospects of the Company over the three year period to 30 September 2023.

This period is used by the Board during the strategic planning process and is considered reasonable for a business of our nature and size. The three year period is considered the most appropriate given the forecasts that the Board require from the Manager and the estimated timeline for finding, assessing and completing investments.

In making this three year assessment, the Board has taken the following factors into consideration:

· The nature of the Company's portfolio

· The Company's investment strategy

· The potential impact of the Principal Risks and Uncertainties

· Share buy-backs

· The liquidity of the Company's portfolio

· Market falls and gains, with particular reference to the COVID-19 pandemic

· Maintaining VCT approval status

The Board has carried out a robust assessment of the above factors, as they have the potential to threaten its business model, future performance, solvency, or liquidity. This review has considered the principal risks as outlined above.

The Board also paid particular attention to the impact of the COVID-19 pandemic on the economic, regulatory and political environment as well as its direct impact upon the Company. The Board has also evaluated the ability of third party suppliers to continue to deliver services to the Company during COVID-19.

The Board has considered the ability of the Company to raise funds and deploy capital. Their assessment took account of the availability and likely effectiveness of the mitigating actions that could be taken to avoid or reduce the impact of the underlying risks, and the large listed portfolio that could be liquidated if necessary.

The Company's portfolio currently includes a large position in cash or liquid money market funds. Over the last five years, cash and liquid money market funds have averaged c.19 per cent of the NAV and reflected 24.6 per cent of the 30 September 2020 NAV. Cash balances can be varied due to changes in market conditions, but positive cash levels are expected to be maintained over the period. The Company has no debt, and it is expected that the Company will remain ungeared for the foreseeable future.

The Directors have also considered the Company's income and expenditure projections and find these to be realistic and sensible. The Directors have assessed the Company's ability to cover its annual running costs under several liquidity scenarios in which the value of liquid assets (included AIM-traded investments and OEICs) has been subject to sensitivity analysis. The Directorsnoted that under none of these scenarios was the Company unable to cover its costs.

Based on the Company's processes for monitoring costs, share price discount, the Manager's compliance with the investment objective, policies and business model, asset allocation and the portfolio risk profile, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to 30 September 2023.

Returns to Investors

Dividend policy

The Board will decide the annual dividends each year and the level of the dividends will depend on investment performance, the level of realised returns and available liquidity. The dividend policy guidelines below are not binding and the Board retains the ability to pay higher or lower dividends relevant to prevailing circumstances. However, the Board confirms the following two guidelines that shape its dividend policy:

· The Board will, wherever possible, seek to pay two dividends to Shareholders in each calendar year, typically an interim in September and a final dividend following the AGM in February/March; and

· The Board will use, as a guide, when setting the dividends for a financial year, a sum representing 7 per cent of the opening NAV of that financial year.

Shareholder choice

The Board wishes to provide Shareholders with a number of choices that enable them to utilise their investment in Baronsmead Second Venture Trust in ways that best suit their personal investment and tax planning and in a way that treats all Shareholders equally.

· Fund raising | From time to time the Company seeks to raise additional funds by issuing new shares at a premium to the latest published net asset value to account for costs. The Company currently has an Offer open to raise up to £20 million with an additional £17.5 million overallotment facility available, as required.

· 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 2,152,000 shares were bought in this way during the year to 30 September 2020.

·     Buy back of shares | From time to time the Company buys its own shares through the market in accordance   with its share price discount policy. Subject to certain conditions, the Company seeks to maintain a mid-share   price discount of approximately 5 per cent to net asset value where possible. However, Shareholders should   note this discount may widen during the periods of market volatility.

·     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 567,000 shares were bought by investors in the Company's existing shares in the year to 30 September 2020.

On behalf of the Board

Sarah Fromson

Chairman

3 December 2020

Extract of the Directors' Report

Shares and Shareholders

Share capital

Pursuant to the Prospectus published by the Company on 3 October 2019 in conjunction with Baronsmead Venture Trust plc in relation to an offer for subscription to each raise up to £20 million (before costs) with an over-allotment facility to each raise up to a further £5 million, the Company issued a total of 23,446,326 ordinary shares in the year by way of four allotments, raising approximately £18.4 million. Details of these allotments are as set out below:

· On 20 November 2019, the Company issued 11,596,119 ordinary shares under the first allotment at an issue price of 78.90p per share. The shares were admitted to trading on 21 November 2019.

· On 23 January 2020, the Company issued 5,978,704 ordinary shares under the second allotment at an issue price of 84.80p per share. The shares were admitted to trading on 24 January 2020.

· On 27 February 2020, the Company issued 2,318,288 ordinary shares under the third allotment at an issue price of 86.10p per share. The shares were admitted to trading on 28 February 2020.

· On 6 March 2020, the Company issued an additional 101,155 ordinary shares following an adjustment of the Company's 31 January 2020 NAV, after shareholder approval of the Company's final dividend at its February 2020 AGM. The shares were issued at a price of 82.50p and were admitted to trading on 11 March 2020.

· On 31 March 2020, the Company issued 3,452,060 ordinary shares under the fourth allotment at an issue price of 64.30p per share. The shares were admitted to trading on 1 April 2020.

On 10 November 2020 the Company issued 16,956,777 new ordinary shares pursuant to the offer for subscription set out in the prospectus published on 16 September 2020. These new shares were issued at a price of 77.90p per share, representing 5.88 per cent of the issued share capital following the allotment with an aggregate nominal value of £1,695,67 8 , raising a further £13,209,329 of new funds (before expenses).

At the AGM held on 27 February 2020, the Company was granted authority to purchase up to 14.99 per cent of the Company's ordinary share capital in issue at that date on which the Notice of AGM was published, amounting to 38,916,505 ordinary shares. During the year, the Company bought back a total of 4,421,929 ordinary shares to be held in Treasury, representing 1.63 per cent of the issued share capital as at 30 September 2020, with an aggregate nominal value of £442,19 3 . The total amount paid for these shares was £3,186,4 50 . Since the 30 September 2020 the Company has bought back 400,000 shares. The Company has remaining authority to buy back 34,094,576 shares under the resolution approved at the AGM in 2020.

During the year, the Company sold 600,000 ordinary shares from Treasury. The total amount received by the Company for these shares was £420,000. Shares will not be sold out of Treasury at a discount wider than the discount at which the shares were initially bought back by the Company.

As at the date of this report the Company's issued share capital was as follows:

Share	Total	% of Shares in issue	Nominal Value
In issue	288,423,431	100.00	£28,842,343.10
Held in Treasury	24,615,084	8.53	£2,461,508.40
In circulation	263,808,347	91.46	£26,380,834.70

Shareholders

Each 10p ordinary share entitles the holder to attend and vote at general meetings of the Company, to participate in the profits of the Company, to receive a copy of the Annual Report & Financial Statements and to a final distribution upon the winding up of the Company.

There are no restrictions on voting rights, no securities carry special rights and the Company is not aware of any agreement between holders of securities that result in restrictions on the transfer of securities or on voting rights. There are no agreements to which the Company is party that may affect its control following a takeover bid.

In addition to the powers provided to the Directors under UK company law and the Company's Articles of Association, at each AGM the shareholders are asked to authorise certain powers in relation to the issuing and purchasing of the Company's own shares. Details of the powers granted at the AGM held in 2020, all of which remain valid, can be found in the previous Notice of AGM.

The Board is not, and has not been throughout the year, aware of any beneficial interests exceeding 3 per cent of the total voting rights.

Dividends

The Company has paid or declared the following dividends for the year to 30 September 2020:

Dividends	£'000
Interim dividend of 3.0p per ordinary share paid on 11 September 2020	7,405
Final dividend of 3.5p per ordinary share to be paid on 5 March 2021	8,654
Total dividends paid for the year	16,059

* Calculated on shares in circulation as at 30 September 2020.

Subject to shareholder approval at the AGM on 16 February 2021, a final dividend of 3.5p per share will be paid on 5 March 2021 to shareholders on the register at 5 February 2021.

Annual General Meeting

The AGM will be held on 16 February 2021. A separate notice convening the Annual General Meeting will be posted to shareholders and will be separate to the Annual Report. The Notice will include an explanation of the items to be considered at the Annual General Meeting and will be uploaded to the Company's website in due course.

Directors

Appointments

The rules concerning the appointment and replacement of Directors are contained in the Company's Articles of Association and the Companies Act 2006. Further details in relation to the appointed Directors and the governance arrangements of the Board can be found in the full Annual Report.

Directors are entitled to a payment in lieu of three months' notice by the Company for loss of office in the event of a takeover bid.

Directors' Indemnity

Directors' and Officers' liability insurance cover is in place in respect of the Directors and was in place throughout the year under review. 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 in force.

Conflicts of Interest

The Directors have declared any conflicts or potential conflicts of interest to the Board of Directors which has the authority to approve such situations. The Company Secretary maintains the Register of Directors' Conflicts of Interests which is reviewed quarterly by the Board. Directors advise the Company Secretary and the Board as soon as they become aware of any conflicts of interest. Directors who have conflicts of interest do not take part in discussions which relate to any of their conflicts.

The Board are aware that Tim Farazmand acted as a consultant to the Manager until October 2019. Having considered the role that Mr Farazmand undertook and the period of time that has elapsed since he acted in this role for Gresham House, the Board have resolved that Mr Farazmand is independent of the Manager for the purposes of the AIC Code of Corporate Governance.

Financial Instruments

The Company's financial instruments comprise equity and fixed interest investments, cash balances and liquid resources including debtors and creditors that arise directly from its operations such as sales and purchases awaiting settlement and accrued income. The financial risk management objectives and policies arising from its financial instruments and the exposure of the Company to risk are disclosed in note 3.3 of the accounts.

Responsibility for accounts

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 Auditor is 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 Auditor is aware of that information.

Going Concern

After making enquiries and bearing in mind the nature of the Company's business and assets, the Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future. The going concern assumption assumes that the Company will maintain its VCT status with HMRC.

The Directors acknowledge that the COVID-19 outbreak has had a significant adverse impact globally and that this has caused substantial volatility in financial markets. The Board nevertheless consider the Company to be well placed to continue to operate through the crisis and to continue to operate for at least twelve months from the date of this report, as the Company has sufficient liquidity to pay its liabilities as and when they fall due and also to invest in new opportunities as they arise.

In arriving at this conclusion the Directors have considered the guidance published by the Financial Reporting Council (FRC) regarding COVID-19 and going concern.

The Directors note that the Company's third-party suppliers, including its Investment Manager, Company Secretary, Depositary and Custodian, Registrar, Auditor and Broker, are not experiencing significant operational difficulties affecting their respective services to the Company.

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 12 months from the date that these financial statements were approved. As at 30 September 2020, the Company held cash balances and investments in readily realisable securities with a value of £40.5 million, representing 24.6 per cent of the Company's NAV. The Company has no debt, and it is expected that the Company will remain ungeared for the foreseeable future.

The Directors have assessed the Company's ability to cover its annual running costs under several liquidity scenarios in which the value of liquid assets (including AIM-traded investments and OEICs) has been subject to sensitivity analysis. The Directors noted that under none of these scenarios was the Company unable to cover its costs.

The Company's forecasts and cash flow projections, taking into account the current economic environment and other, plausibly possible changes in performance, show that the Company has sufficient funds to meet both its contracted expenditure and its discretionary cash outflows in the form of the share buyback programme and dividend policy.

Listing Rule Disclosure

The Company confirms that there are no items which require disclosure under the listing rule 9.8.4R in respect of the year ended 30 September 2020.

By Order of the Board

Gresham House Asset Management Ltd

Company Secretary

5 New Street Square, London EC4A 3TW

3 December 2020

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, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable and prudent;

· state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;

· assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

·   use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations or have no realistic alternative but to do so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and 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 are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement of the directors in respect of the annual financial report

We confirm that to the best of our knowledge:

· the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company taken as a whole; and

· the Strategic Report/Directors' Report includes a fair and balanced review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that they face.

We consider the Annual Report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Company's position and performance, business model and strategy.

On behalf of the Board

Sarah Fromson

Chairman

3 December 2020

NON-STATUTORY ACCOUNTS

The financial information set out below does not constitute the Company's statutory accounts for the periods ended 30 September 2019 and 2020 but is derived from those accounts. Statutory accounts for 2019 have been delivered to the Registrar of Companies, and those for 2020 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.baronsmeadvcts.co.uk  

Income Statement

For the year ended 30 September 2020

		Year ended 30 September 2020			Year ended 30 September 2019
	Notes	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains(losses) on investments	2.3	-	8,680	8,680	-	(14,442)	(14,442)
Income	2.5	4,008	-	4,008	3,258	-	3,258
Investment management fee	2.6	(1,078)	(3,235)	(4,313)	(1,079)	(3,236)	(4,315)
Other expenses	2.6	(674)	-	(674)	(695)	-	(695)
Profit/(loss) before taxation		2,256	5,445	7,701	1,484	(17,678)	(16,194)
Taxation	2.9	(275)	275	-	(41)	41	-
Profit/(loss) for the year, being total comprehensive income for the year		1,981	5,720	7,701	1,443	(17,637)	(16,194)
Return per ordinary share:
Basic and diluted	2.2	0.82p	2.36p	3.18p	0.64p	(7.87p)	(7.23p)

All items in the above statement derive from continuing operations.

There are no recognised gains and losses other than those disclosed in the Income Statement.

The revenue column of the Income Statement includes all income and expenses. The capital column accounts for the realised and unrealised profit or loss on investments and the proportion of the management fee charged to capital.

The total column of this statement is the Statement of Total Comprehensive Income of the Company prepared in accordance with Financial Reporting Standards or FRS 102. The supplementary revenue return and capital return columns are prepared in accordance with the Statement of Recommended Practice issued by the Association of Investment Companies ("AIC SORP").

Statement of Changes in Equity

For the year ended 30 September 2020

	Notes	Non-distributable reserves			Distributable Reserves
		Called-up share capital £'000	Share premium  £'000	Revaluation Reserve £'000	Capital reserve £'000	Revenue reserve £'000	Total £'000
At 1 October 2019		24,802	31,191	25,492	92,316	1,575	175,376
Profit after taxation		-	-	5,398	322	1,981	7,701
Net proceeds of share issues, share buybacks & sale of shares from treasury		2,344	15,584	-	(2,782)	-	15,146
Other costs charged to capital		-	-	-	(1)	-	(1)
Dividends paid	2.4	-	-	-	(14,565)	(1,340)	(15,905)
At 30 September 2020		27,146	46,775	30,890	75,290	2,216	182,317

There were no Share Premium cancellation costs in the 2020 year.

For the year ended 30 September 2019

	Notes	Non-distributable reserves				Distributable Reserves
		Called-up share capital £'000	Share premium £'000	Revaluation reserve £'000	Capital reserve £'000	Revenue reserve £'000	Total £'000
At 1 October 2018		23,279	20,080	47,205	105,243	3,583	199,390
(Loss)/profit on ordinary activities after taxation		-	-	(21,713)	4,076	1,443	(16,194)
Net proceeds of share issues, share buybacks & sale of shares from treasury		1,523	11,111	-	(3,283)	-	9,351
Dividends paid	2.4	-	-	-	(13,720)	(3,451)	(17,171)
At 30 September 2019		24,802	31,191	25,492	92,316	1,575	175,376

Balance Sheet

As at 30 September 2020

	Notes	As at 30 September 2020 £'000	As at 30 September 2019 £'000
Fixed assets
Investments	2.3	179,932	166,104
Current assets
Debtors	2.7	571	406
Cash at bank		3,108	10,992
		3,679	11,398
Creditors (amounts falling due within one year)	2.8	(1,294)	(2,126)
Net current assets		2,385	9,272
Net assets		182,317	175,376
Capital and reserves
Called-up share capital	3.1	27,146	24,802
Share premium	3.2	46,775	31,191
Capital reserve	3.2	75,290	92,316
Revaluation reserve	3.2	30,890	25,492
Revenue reserve	3.2	2,216	1,575
Equity Shareholders' funds	2.1	182,317	175,376
Net asset value per share
- Basic and diluted	2.1	73.74p	77.05p

The Financial Statements were approved, and authorised by issue, by the board of Directors of Baronsmead Second Venture Trust plc on 3 December 2020 and were signed on its behalf by:

Sarah Fromson

Chairman

Statement of Cash Flows

For the year ended 30 September 2020

	Year ended 30 September 2020 £'000	Year ended 30 September 2019 £'000
Cash flows from operating activities
Investment income received	3,603	3,411
Investment management fees paid	(4,269)	(4,465)
Other cash payments	(673)	(710)
Net cash outflow from operating activities	(1,339)	(1,764)
Cash flows from investing activities
Purchases of investments	(36,999)	(17,175)
Disposals of investments	30,976	36,896
Net cash (outflow)/inflow from investing activities	(6,023)	19,721
Equity dividends paid	(15,905)	(17,171)
Net cash (outflow)/inflow before financing activities	(23,267)	786
Cash flows from financing activities
Net proceeds of share issues, share buybacks & sale of shares from treasury	15,384	9,110
Costs charged to capital	(1)	-
Net cash inflow from financing activities	15,383	9,110
(Decrease)/increase in cash	(7,884)	9,896
Reconciliation of net cash flow to movement in net cash
(Decrease)/increase in cash	(7,884)	9,896
Opening cash position	10,992	1,096
Closing cash at bank and on deposit	3,108	10,992
Reconciliation of profit/(loss) before taxation to net cash outflow from operating activities
Profit/(loss) before taxation	7,701	(16,194)
(Gains)/losses on investments	(8,680)	14,442
(Increase)/decrease in debtors	(403)	154
Increase/(decrease) in creditors	43	(162)
Written off expenses from merger	-	(4)
Net cash outflow from operating activities	(1,339)	(1,764)

Notes to the Financial Statements

For the year ended 30 September 2020

We have grouped notes into sections under three key categories:

1. Basis of preparation

2. Investments, performance and shareholder returns

3. Other required disclosures

The key accounting policies have been incorporated throughout the notes to the Financial Statements adjacent to the disclosure to which they relate. All accounting policies are included within an outlined box.

1.  Basis of Preparation

1.1  Basis of Accounting

These Financial Statements have been prepared under FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' 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 November 2014 and updated in January 2017, February 2018 and October 2019 and on the assumption that the Company maintains VCT status with HMRC. The application of the Company's accounting policies requires judgement, estimation and assumptions about the carrying amount of assets and liabilities. These estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. After making the necessary enquiries, including those made during the preparation of the viability statement in the Strategic Report, the Directors believe that the Company will continue to be able to meet its liabilities as and when they fall due for a period of at least 12 months, therefore it is appropriate to apply the going concern basis in preparing the financial statements. The Directors acknowledge the significant adverse effect that the COVID-19 outbreak has had globally, however the Directors consider the Company to be well placed to continue to operate through the crisis and for at least 12 months from the date of this report. The Company has no debt and has sufficient liquidity to meet both its contracted expenditure and its discretionary cash outflows, including to invest in new opportunities as they arise. The Directors note that the Company's third-party suppliers are not experiencing significant operational difficulties affecting their respective services to the Company. The Directors have also assessed the Company's ability to cover its annual running costs under several liquidity scenarios in which the value of liquid assets (including AIM-traded investments and OEICs) has been subject to sensitivity analysis, taking into account the current economic environment and other, plausibly possible changes in performance. It is therefore appropriate to apply the going concern basis in preparing the financial statements.

2.  Investments, Performance and Shareholder Returns

2.1 Net Asset Value Per Share

	Number of ordinary shares		Net asset value per share attributable		Net asset value attributable
	30 September 2020 number	30 September 2019 number	30 September 2020 pence	30 September 2019 pence	30 September 2020 £'000	30 September 2019 £'000
Ordinary shares (basic)	247,251,570	227,627,173	73.74	77.05	182,317	175,376

2.2  Return Per Share

	Weighted average number of ordinary shares		Return per ordinary share		Net profit/(loss) after taxation
	30 September 2020 number	30 September 2019 number	30 September 2020 pence	30 September 2019 Pence	30 September 2020 £'000	30 September 2019 £'000
Revenue	242,461,220	224,063,666	0.82	0.64	1,981	1,443
Capital	242,461,220	224,063,666	2.36	(7.87)	5,720	(17,637)
Total			3.18	(7.23)	7,701	(16,194)

2.3  Investments

The Company has fully adopted sections 11 and 12 of FRS 102. Purchases or sales of investments are recognised at the date of transaction at present value. Investments are subsequently measured at fair value through Profit and Loss. For AIM-traded securities this is either bid price or the last traded price, depending on the convention of the exchange on which the investment is traded. In respect of collective investment vehicles, which consists of investments in open ended investment companies authorised in the UK, this is the closing price. In respect of unquoted investments, these are valued at fair value by the Directors using methodology which is consistent with the International Private Equity and Venture Capital Valuation guidelines ("IPEV"). Judgements The key judgements in the fair valuation process are: i)  The Manager's determination of the appropriate application of the IPEV to each unquoted investment; ii)  The Directors' consideration of whether each fair value is appropriate following detailed review and challenge. The judgement applied in the selection of the methodology used for determining the fair value of each unquoted investment can have a significant impact upon the valuation. Estimates The key estimate in the Financial Statements is the determination of the fair value of the unquoted investments. This estimate is key as it significantly impacts the valuation of the unlisted investments at the balance sheet date. The fair valuation process involves estimates using inputs that are unobservable (for which market data is unavailable). Fair value estimates are cross-checked to alternative estimation methods where possible to improve the robustness of the estimate. As the valuation outcomes may differ from the fair value estimates a price sensitivity analysis is provided in Other Price Risk Sensitivity in note 3.3 below. The risk of an over or underestimation of fair values is greater when methodologies are applied using more subjective inputs. Assumptions The determination of fair value for unquoted investments involves key assumptions dependent upon the valuation methodology used. The primary methodologies applied are: i)  Rebased Cost ii)  Earnings Multiple iii)  Offer Less 10 per cent The Earnings Multiple approach involves more subjective inputs than the Rebased Cost and Offer approaches and therefore presents a greater risk of over or under estimation. Rebased cost approach involves holding the investment at the price set in the latest available funding round. The key assumptions for the Multiples approach are that the selection of comparable companies on which to determine earnings multiple (chosen on the basis of their business characteristics and growth patterns) and using either historic or forecast revenues (as considered most appropriate) provide a reasonable basis for identifying relationships between enterprise value and growth to apply in the determination of fair value. Other assumptions include the appropriateness of the discount magnitude applied for reduced liquidity and other qualitative factors. The assumption of offer less 10 per cent is in line with our internal valuation methodology. Gains and losses arising from changes in the fair value of the investments are included in the Income Statement for the year 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. The nature of the unquoted portfolio currently will influence the valuation technique applied. The valuation approach recognises that, as stated in the IPEV Guidelines, the price of a recent investment, if resulting from an orderly transaction, generally represents fair value as at the transaction date and may be an appropriate starting point for estimating fair value at subsequent measurement dates. However, consideration is given to the facts and circumstances as at the subsequent measurement date, including changes in the market or performance of the investee company. Milestone analysis is used where appropriate to incorporate the operational progress of the investee company into the valuation. Additionally, the background to the transaction must be considered. As a result, various multiples based techniques are employed to assess the valuations particularly in those companies with established revenues. All valuations are cross-checked for reasonableness by employing relevant alternative techniques.

All investments are initially recognised and subsequently measured at fair value. Changes in fair value are recognised in the Income Statement. The details of which are set out in the box above.

The methods of fair value measurement are classified into a hierarchy based on reliability of the information used to determine the valuation.

· Level 1 - Fair value is measured based on quoted prices in an active market.

· Level 2 - Fair value is measured based on directly observable current market prices or indirectly being derived from market prices.

· Level 3 - Fair value is measured using a valuation technique that is not based on data from an observable market.

	As at 30 September 2020 £'000	As at 30 September 2019 £'000
Level 1
Investments traded on AIM	71,528	63,807
Level 2
Investments traded on AIM	2,553	7,749
Collective investment vehicles	59,367	45,618
Investments listed on LSE	42	-
Level 3
Unquoted investments	46,442	48,930
	179,932	166,104

	Level 1	Level 2		Level 3
	Traded on AIM £'000	Listed on LSE  £'000	Traded on AIM  '000	Collective investment vehicles £'000	Unquoted £0'000	Total £'000
Opening book cost	62,148	-	8,443	32,865	37,156	140,612
Opening unrealised appreciation/ (depreciation)	1,659	-	(694)	12,753	11,774	25,492
Opening fair value	63,807	-	7,749	45,618	48,930	166,104
Movements in the year:
Transfers between levels	(2,274)	3,429	(1,930)	-	775	-
Purchases at cost	2,847	-	-	26,130	7,147	36,124
Sale - proceeds	(13,759)	-	-	(13,577)	(3,640)	(30,976)
- realised gains/(losses) on sales	1,434	-	-	-	(1,496)	(62)
Unrealised gains/(losses) realised during the year	3,699	-	-	-	(355)	3,344
Increase/(decrease) in unrealised appreciation	15,774	(3,387)	(3,266)	1,196	(4,919)	5,398
Closing fair value	71,528	42	2,553	59,367	46,442	179,932
Closing book cost	54,095	3,429	6,513	45,418	39,587	149,042
Closing unrealised appreciation/(depreciation)	17,433	(3,387)	(3,960)	13,949	6,855	30,890
Closing fair value	71,528	42	2,553	59,367	46,442	179,932
Equity shares	71,528	42	2,553	-	27,452	101,575
Preference shares	-	-	-	-	3,217	3,217
Loan notes	-	-	-	-	15,773	15,773
Collective investment vehicles	-	-	-	59,367	-	59,367
Closing fair value	71,528	42	2,553	59,367	46,442	179,932

The gains and losses included in the above table have all been recognised in the Income Statement above.

Two investments held, MXC Capital Ltd (previously Level 1) and Mi-Pay Group plc (previously Level 2) were transferred to Level 3 following their delisting from AIM. The investment in Hawkwing plc (previously Level 1, Traded on AIM) has been transferred to Level 2, listed on LSE following its admission to LSE's main market. Dods (Group) plc has been transferred to Level 2, traded on AIM.

The Company received £17.4 million (2019: £24.6 million) from investments sold in the year. The book cost of these investments when they were purchased was £14.2 million (2019: £13.5 million). These investments have been revalued over time and until they were sold any unrealised gains or losses were included in the fair value of the investments.

2.4  Dividends

In accordance with FRS 102, dividends are recognised as a liability in the period in which they are declared.

	Year ended 30 September 2020			Year ended 30 September 2019
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
For the year ended 30 September 2020
Interim dividend of 3.0p per ordinary share paid on 11 September 2020	247	7,158	7,405	-	-	-
For the year ended 30 September 2019
Final dividend of 3.5p per ordinary share paid on 3 March 2020	1,093	7,407	8,500	-	-	-
Interim dividend of 3.0p per ordinary share paid on 27 September 2019	-	-	-	-	6,819	6,819
For the year ended 30 September 2018
Final dividend of 4.5p per ordinary share paid on 8 March 2019	-	-	-	3,451	6,901	10,352
	1,340	14,565	15,905	3,451	13,720	17,171

2.5  Income

Interest income on loan notes and dividends on preference shares are accrued on a daily basis. Provision is made against this income where recovery is doubtful. Where the terms of unquoted loan notes only require interest or a redemption premium to be paid on redemption, the interest and the 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. When a redemption premium is designed to protect the value of the instrument holder's investment rather than reflect a commercial rate of revenue return the redemption premium should be recognised as capital. The treatment of redemption premiums is analysed to consider if they are revenue or capital in nature on a company by company basis. A redemption premium of £nil was received in the year ended 30 September 2020. Income from fixed interest securities and deposit interest is included on an effective interest rate basis. Dividends on quoted shares are recognised as income when the related investments are marked ex-dividend and where no dividend date is quoted, when the Company's right to receive payment is established.

	Year ended 30 September 2020			Year ended 30 September 2019
	Quoted securities £'000	Unquoted securities £'000	Total £'000	Quoted securities £'000	Unquoted securities £'000	Total £'000
Income from investments
Dividend income	721	88	809	1,184	84	1,268
Interest income	62	3,137	3,199	183	1,733	1,916
Redemption premium	-	-	-	-	74	74
Total income	783	3,225	4,008	1,367	1,891	3,258

All investments have been included at fair value through profit or loss on initial recognition, therefore all investment income arises on investments at fair value through profit or loss.

In the year ended 30 September 2020, the Company received interest income of £2.57m from Glide Ltd (2019: £nil).

2.6  Investment management fee and other expenses

All expenses are recorded on an accruals basis. Management fees are allocated 25 per cent income and 75 per cent capital derived in accordance with the board's expected split between long-term income and capital returns. Performance fees are allocated 100 per cent to capital.

	Year ended 30 September 2020			Year ended 30 September 2019
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Investment management fee	1,078	3,235	4,313	1,079	3,236	4,315
Performance fee	-	-	-	-	-	-
	1,078	3,235	4,313	1,079	3,236	4,315

The management agreement may be terminated by either party giving 12 months notice of termination.

The Manager, Gresham House, 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 collective investment vehicles, Micro Cap and Multi Cap, are also managed by Gresham House. Arrangements are in place to avoid the double charging of fees.

The Manager is entitled to a performance fee when the total return on net proceeds of the ordinary shares exceeds 8 per cent per annum (on a simple basis). The Manager is entitled to 10 per cent of the excess. The amount of any performance fee which is paid in respect of a calculation period shall be capped at 5 per cent of the Shareholders' funds at the end of the calculation period. No performance fee is payable for the year ended 30 September 2020 (2019: £nil).

Other expenses

	Year ended	Year ended
	30 September	30 September
	2020	2019
	£'000	£'000
Directors' fees	134	122
Secretarial and accounting fees paid to the Manager	175	172
Remuneration of the auditors and their associates:
- audit	58	28
- other services supplied pursuant to legislation (interim review)	-	5
Other	307	368
	674	695

Information on Directors' remuneration is given in the Directors' emoluments table in the Remuneration Report in the full Annual Report.

Charges for other services provided by the Auditors in the year ended 30 September 2020 were in relation to the interim review. The Audit Committee reviews the nature and extent of non-audit services to ensure that independence is maintained. The Directors consider that the Auditors were best placed to provide such services.

2.7  Debtors

	As at	As at
	30 September	30 September
	2020	2019
	£'000	£'000
Prepayments and accrued income	571	168
Amounts due from brokers	-	238
	571	406

2.8  Creditors (amounts falling due within one year)

	As at	As at
	30 September	30 September
	2020	2019
	£'000	£'000
Management, secretarial and accounting fees due	1,188	1,146
Amounts due to brokers	-	875
Other creditors	106	105
	1,294	2,126

2.9  Tax

UK corporation tax payable is provided on taxable profits at the current rate. Provision is made for deferred taxation, without discounting, on all timing differences and is calculated using substantively enacted tax rates. 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.

A reconciliation of the tax charge/(credit) to the profit/(loss) before taxation is shown below:

	Year ended			Year ended
	30 September 2020			30 September 2019
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Profit/(loss) on ordinary activities before taxation	2,256	5,445	7,701	1,484	(17,678)	(16,194)
Corporation tax at 19.0 per cent (2019: 19.0 per cent)	429	1,035	1,464	282	(3,359)	(3,077)
Effect of:
Non-taxable gains	-	(1,649)	(1,649)	-	2,744	2,744
Non-taxable dividend income	(154)	-	(154)	(241)	-	(241)
Non-deductible expenses	-	-	-	-	-	-
Losses carried forward	-	339	339	-	574	574
Tax charge/(credit) for the year	275	(275)	-	41	(41)	-

At 30 September 2020 the Company had surplus management expenses of £15,321,306 (2019: £13,588,622) 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 year in excess of the deductible expenses of that future year and, accordingly, the Company is unlikely to be able to reduce future tax liabilities through the use of existing surplus expenses. Due to the Company's status as a VCT, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.

3.  Other Required Disclosures

3.1  Called-up share Capital

Allotted, called-up and fully paid:

Ordinary shares	£'000
248,020,328 ordinary shares of 10p each listed at 30 September 2019	24,802
23,446,326 ordinary shares of 10p each issued during the year	2,344
271,466,654 ordinary shares of 10p each listed at 30 September 2020	27,146
20,393,155 ordinary shares of 10p each held in treasury at 30 September 2019	(2,039)
4,421,929 ordinary shares of 10p each repurchased during the year and held in treasury	(442)
600,000 ordinary shares of 10p each sold from treasury during the year	60
24,215,084 ordinary shares of 10p each held in treasury at 30 September 2020	(2,421)
247,251,570 ordinary shares of 10p each in circulation* at 30 September 2020	24,725

* Carrying one vote each.

The 23,446,326 ordinary shares were issued at an average price of 78.525p.

During the year the Company bought back into treasury 4,421,929 ordinary shares, representing 1.78 per cent of the ordinary shares in issue at the beginning of the financial year. During the year the Company also sold 600,000 shares from treasury.

Treasury shares

When the Company re-acquires its own shares, they are currently held as treasury shares and not cancelled.

Shareholders have authorised the board to re-issue treasury shares at a discount to the prevailing NAV subject to the following conditions:

· It is in the best interests of the Company;

· Demand for the Company's shares exceeds the shares available in the market;

· A full prospectus must be produced if required; and

· HMRC will not consider these 'new shares' for the purposes of the purchasers' entitlement to initial income tax relief.

3.2  Reserves

Gains and losses on realisation of investments of a capital nature are dealt with in the capital reserve. Purchases of the Company's own shares to be either held in treasury or cancelled are also funded from this reserve. 75 per cent of management fees are allocated to the capital reserve in accordance with the board's expected split between long-term income and capital returns.

	Distributable reserves			Non-distributable reserves
	Capital reserve £'000	Revenue reserve £'000	Total £'000	Share premium £'000	Revaluation reserve* £'000	Total £'000
At 1 October 2019	92,316	1,575	93,891	31,191	25,492	56,683
Gross proceeds of share issues	-	-	-	16,091	-	16,091
Purchase of shares for treasury	(3,186)	-	(3,186)	-	-	-
Sale of shares from treasury	420	-	420	-	-	-
Expenses of share issues and buybacks	(16)	-	(16)	(507)	-	(507)
Other costs charged to capital	(1)	-	(1)	-	-	-
Reallocation of prior year unrealised gains	3,344	-	3,344	-	(3,344)	(3,344)
Realised loss of disposal of investments#	(62)	-	(62)	-	-	-
Net increase in value of investments#	-	-	-	-	8,742	8,742
Management fee charged to capital#	(3,235)	-	(3,235)	-	-	-
Taxation relief from capital expenses#	275	-	275	-	-	-
Profit after taxation#	-	1,981	1,981	-	-	-
Dividends paid in the year	(14,565)	(1,340)	(15,905)	-	-	-
At 30 September 2020	75,290	2,216	77,506	46,775	30,890	77,665

* Changes in fair value of investments are dealt with in this reserve.

^# The total of these items is £7,701,000, which agrees to the total loss for the year

Distributable reserves may also include any net unrealised gains on investments whose prices are quoted in an active market and deemed readily realisable in cash.

Share premium is recognised net of issue costs.

The Company does not have any externally imposed capital requirements.

3.3 Financial Instruments Risks

The Company's financial instruments comprise equity and fixed interest investments, cash balances and liquid resources including debtors and creditors. The Company holds financial assets in accordance with its investment policy to invest in a diverse portfolio of UK growth businesses.

The Company's investing activities expose it to a range of financial risks. These key risks and the associated risk management policies to mitigate these risks are described below .

Market Risk

Market risk includes price risk on investments and interest rate risk on investments and other financial assets and liabilities.

Price Risk

The investment portfolio is managed in accordance with the policies and procedures described in the full Annual Report and Audited Financial Statements.

Investments in companies listed on the AIM market usually involve a higher risk than investments in larger companies quoted on a recognised stock exchange. The spread between the buying and selling price of such shares may be wide and the price used for valuation may be limited and many may not be achievable. The valuation of the portfolios and opportunities for realisation of AIM-traded investments within the portfolios may also depend on stock market conditions.

The Company aims to reduce these risks by diversifying the portfolio across business sectors and asset classes. The Board monitors the portfolio on a quarterly basis.

Investments in unquoted companies, by their nature, usually involve a higher degree of risk than investments in companies quoted on a recognised stock exchange. The fair valuation of these unquoted investments is influenced by the estimates, assumptions and judgements made in the fair valuation process (see 2.3 above). The estimation uncertainty for unquoted investments held as at 30 September 2020 has been further increased by the COVID-19 pandemic and associated government intervention.

Price Risk Sensitivity

As at 30 September 2020, each unquoted company has been classified as having a higher, medium or lower level of estimation uncertainty by considering a range of factors including the availability and extent of cash resources, and the potential disruption to business activities caused by measures adopted to tackle the spread of COVID-19. In addition, the impact of COVID-19 on the relevant industry, liquidity concerns for the specific company, and operational impacts on the business were also considered in arriving at the level of estimation uncertainty. For example, we have classified investments in the casual dining and travel sector as higher risk as the impact of COVID-19 on these industries has been particularly severe. There is higher uncertainty around the estimated sustainable earnings of these businesses, and the extent of their cash resources, and therefore there are a larger range of possible outcomes from the valuation of these investments.

A greater sensitivity factor has been applied to those investments assessed as having a higher level of estimation uncertainty. The sensitivities applied illustrate the impact of varying the key inputs by the levels specified, however it is possible that by applying reasonable alternative assumptions to individual investments, the fair value may vary to a greater extent than that illustrated.

The sensitivity factors applied to each risk category are based on experience of valuation movements during the pandemic so far. A higher sensitivity of 30 per cent has been applied to the higher risk companies, to reflect that the full impact of COVID-19 is much more uncertain and challenging to predict than for the medium and lower risk companies, where a sensitivity of between 2 0 per cent and 5 per cent has been applied respectively.

The table below reflects both the potential positive and negative impacts of COVID-19, recognising that there are investments that in our view bear increased valuation uncertainty due to possible positive impacts from COVID-19. The combined value of the holdings felt to be more likely to see a positive impact is £10.3   m illion . Several of these holdings have benefitted from the increased shift to e-commerce, for example Yappy and Custom Materials, and others, such as SecureCloud+, have benefitted from the growth in remote working and newly fragmented workforces.

The table below has split out each risk category and applied both upside and downside sensitivities to the key variable inputs. The sensitivities give an indication of the effect of changing one or more of the inputs to these valuations, and the impact of increased volatility depending on exposure to the future and current effects of COVID-19. The valuation has then been recalculated using this adjusted key variable input, in order to determine the impact on the fair value of the Company's investment. The structure of the investment will vary between investee companies and therefore the impact on the investment's fair value will vary. For example, the Company holds a preferred, or priority position, in many of the investee companies and therefore in these cases may be more protected from severe downside scenarios.

Security	Valuation basis	Key variable inputs	Risk Level	Sensitivity %	Fair Value £'000s	£'000s	Positive Impact % of net assets	£'000	Negative Impact % of net assets
Unquoted	Earnings Multiple	Estimated sustainable earnings Selection of comparable companies Application of illiquidity discount Probability estimation of Liquidation event	High Medium Low	+/-30 +/-20 +/-10	9,158 16,828 5,367	2,334 6,525 632	1.3 3.6 0.3	(4,672) (4,047) (407)	(2.6) (2.2) (0.2)
	Price of recent investment	L atest funding round price	Low	+/-5	8,046	4,481	2.5	(448)	(0.2)
	O ther		Low	+/-5	7,043	352	0.2	(352)	(0.2)

A sensitivity has also been performed for quoted AIM investments, which are valued at the latest share price set by the market. A sensitivity of +/- 20 per cent has been applied to the fair value of £74.1 million, reflecting the greater level of volatility in financial markets in 2020 when compared to 2019. A movement of +/- 20 per cent would cause an increase or decrease of £14.8 million to the fair value of the quoted AIM.

The COVID-19 pandemic only emerged during the year ended 30 September 2020, therefore the comparatives for the Price Risk Sensitivity are presented considering known risks at the prior reporting date, and exclude possible fluctuations due to COVID-19.

A sensitivity analysis is provided below which recognises that the valuation methodologies employed involve different levels of subjectivity in their inputs. The sensitivity analysis below applies a wider range of input variable sensitivity to the earnings multiple method due to the increased subjectivity involved in the use of this method compared to the rebased cost method, which refers to the price of a recent investment.

As at 30 September 2019

Security	Valuation basis	Key Variable inputs	Fair Value £'000	Sensitivity %	Impact £'000	Impact % of Net Assets
	Rebased Cost	Latest funding round price	16,857	+/-10	1,686	+/-1.0
Unquoted	Earnings Multiple	Estimated sustainable earnings Selection of comparable companies Application of illiquidity discount Probability estimation of Liquidation event*	32,074	+/-20	6,415	+/-3.7
	Offer less 10%	Current offer price received for sale Discount applied to offer	-	+/-10	-	-
Quoted AIM	Latest share price	N/A*	71,566	+/-10	7,156	+/-4.1

* Latest share price is set by the market

Key Variable Inputs/Valuation Bases

The key variable inputs applicable to each valuation basis will vary dependent on the particular circumstances of each unquoted company valuation. Where there has been a recent transaction, such as an initial investment being made into the company, or where there has been a subsequent external funding round, the key variable input will be the last funding round price. Where this is not the case, the valuation has been based on a multiple of estimated sustainable earnings. An explanation of each of the key variable inputs is provided below and includes an indication of the range in value for each input, where relevant.

Latest funding round price

The latest funding round price is the key variable input in the valuation of a company when there has been a recent investment either by the Company or by another investor. This transaction provides evidence of the price an independent third party would be willing to pay for the investment. There is lower estimation uncertainty where this third party is an external investor, and higher estimation uncertainty where this is an 'internal' investor (i.e. where the investor already has an investment in the company).

Estimated sustainable earnings

The selection of sustainable revenue or earnings will depend upon whether the company is sustainably profitable or not, and where it is not then revenues will be used in the valuation. The valuation approach may use prior year actuals, the last twelve months, or a forecast of earnings where deemed appropriate. The valuation approach will typically assess companies based on the prior year actuals or last twelve months of revenue or earnings, as this represents the most recently available trading information and therefore is viewed as the most reliable. Where the company has a history of accurate forecasting, or where there is a change in circumstance at the business which will impact earnings going forward, then a forecast or budget will be deemed most appropriate.

Selection of comparable companies

The selection of comparable companies is assessed individually for each investment at the point of investment, and at each valuation thereafter. The key criteria in selecting appropriate comparable companies are the industry sector, the business model, and the respective revenue and earnings growth rates of the company. Typically between 4 and 14 comparable companies will be selected for each investment. The resultant revenue or earnings multiples derived can vary in the range of 2x to 11x.

The earnings multiples can be derived from either listed companies with similar characteristics or recent comparable transactions. The value of the unquoted element of the portfolio may therefore also indirectly be affected by price movements on the listed exchanges.

Application of illiquidity discount

An illiquidity discount is applied to the majority of unquoted investments, reflecting that the Company usually holds a minority stake and that the realisation of the investment may require cooperation on the timing and sale price from other stakeholders. The illiquidity discount applied can range from 10 per cent to 30 per cent , depending upon the ownership percentage the Company holds in the investment.

Probability estimation of Liquidation event

A liquidation event is typically a company sale or an I nitial P ublic O ffering (IPO). The probability of a company sale versus an IPO is typically estimated from the outset to be 50:50 if there has been no indication by the company of pursuing either of these routes. This weighting is then adjusted as either scenario becomes more or less likely to occur.

Interest Rate Risk

The Company has the following investments in fixed and floating rate financial assets:

	As at 30 September 2020			As at 30 September 2019
	Total investment £'000	Weighted average interest rate %	Weighted average time for which rate is fixed Years	Total investment £'000	Weighted average interest rate %	Weighted average time for which rate is fixed Years
Fixed rate loan note securities	15,773	7.82	1.99	23,992	8.66	3.11
Floating rate sterling liquidity funds	30,084	-	-	17,530	-	-
Cash at bank and on deposit	3,108	-	-	10,992	-	-
	48,965			52,514

Movements in interest rates would not significantly affect net assets attributable to the Company's Shareholders and total profits due to the interest rate income received from floating rate notes being less than 1 per cent of total investment.

Credit Risk

Credit risk refers to the risk that a counterparty will default on its obligation resulting in a financial loss to the Company. The Investment Manager monitors credit risk on an ongoing basis.

At the reporting date, the Company's financial assets exposed to credit risk amounted to the following:

	As at	As at
	30 September	31 September
	2020	2019
	£'000	£'000
Cash at bank and on deposit	3,108	10,992
Interest, dividends and other receivables	571	406
	3,679	11,398

Credit risk on unquoted loan stock held within unlisted investments is considered to be part of market risk as disclosed earlier in the note.

Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions is considered to be small due to the short settlement period involved and the high credit quality of the brokers used. The Board monitors the quality of service provided by the brokers used to further mitigate this risk.

All the assets of the Company which are traded on a recognised exchange are held by JP Morgan Chase ("JPM"), the Company's custodian. The board monitors the Company's risk by reviewing the custodian's internal controls reports as described in the Corporate Governance section of the full Annual Report.

The cash held by the Company is held by JPM. The board monitors the Company's risk by reviewing regularly the internal control reports. Should the credit quality or the financial position of the 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 30 September 2020 or 2019. No individual investment in a portfolio company exceeded 4.9 per cent of the net assets attributable to the Company's shareholders at 30 September 2020 (2019: 5.6 per cent).

Liquidity Risk

The Company's financial instruments include investments in unquoted companies which are not traded in an organised public market, all of which generally may be illiquid. AIM traded equity investments also carry a degree of liquidity risk. 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. The Company's overall liquidity risks are monitored on a quarterly basis by the Board. The Company is a closed-end fund, assets do not need to be liquidated to meet redemptions, and sufficient liquidity is maintained to meet obligations as they fall due.

The Company maintains sufficient investments in cash and readily realisable securities to pay accounts payable and accrued expenses. At 30 September 2020 these investments were valued at £41,075,000 (2019: £28,522,000).

3.4 Investments in Associates

The Company has chosen not to rebut the presumption that the following holdings are investments in associates, owing to the proportion of equity held and representation on the Board representing significant influence over the operations of the company. The investments held are held as part of an investment portfolio, and are therefore measured at fair value through profit and loss, as detailed in note 2.3 rather than using the equity method, as permitted by Section 14 of FRS 102:

Name	Location	Class of Shares held	% of Equity	Profit (£m)	Net Assets (£m)	Results for year ended
Happy Days Consultancy	UK	A Ordinary & A Preference	35.7	(1.9)	(8.2)	31 December 2018
Storyshare Holdings Limited*	UK	A Ordinary	26.9	-	-	-

* Accounts for Storyshare Holdings Limited are not publicly available.

3.5 Related Parties

Related party transactions include Management, Secretarial, Accounting and Performance fees payable to the Manager, Gresham House, as disclosed in notes 2.6 and 2.8, and fees paid to the Directors along with their shareholdings as disclosed in the Directors' Remuneration Report. In addition, the Manager operates a VCT Incentive Scheme, detailed in the Management retention section of the Strategic Report, whereby members and staff  of the Manager are entitled to participate in all eligible unquoted investments alongside the Company.

During the year, Gresham House Asset Management Ltd received £204,000 (2019: £121,000) advisory fees, £360,000 (2019: £232,000) directors' fees for services provided to companies in the investment portfolio and incurred abort costs of £11,000 (2019: £50,000) with respect to investments attributable to Baronsmead Second Venture Trust plc.

A related party relationship exists between Baronsmead Second Venture Trust plc and Happy Days Consultancy, owing to the significant influence held over the operations of the company. As at 30 September 2020, the loan balance stood at £3,326,000, including £2,694,000 of capitalised interest.

A related party relationship exists between Baronsmead Second Venture Trust and Storyshare Holdings Limited, owing to the significant influence held over the operations of the company.

The Company also holds an investment in Gresham House plc, as part of its quoted portfolio. This investment was made in November 2014, prior to the change of investment manager. For further details on this please refer to the Full Investment Portfolio in the Appendices.

3.6 Segmental Reporting

The Company has one reportable segment being investing in primarily a portfolio of UK growth businesses, whether unquoted or traded on AIM.

3.7 Commitments

As at 30 September 2020, the Company has commitments to provide loan facilities to its investee companies of up to £0.5 million, of which nil has been drawn. Subsequent to the reporting date, the Company has committed an additional £0.7 million, of which nil has been drawn as at the date of this report.

3.8 Post Balance Sheet Events

The following events occurred between the balance sheet date and the signing of these financial statements:

· 17 million shares were issued on 10 November 2020 at an allotment price of 77.90p under the current offer

· Two new investments, eConsult and RevLifter, completed totalling £3.4 million

· Two full realisations: Ten10, realising proceeds of £7.3 million and making a return of 3.7x cost; and Collagen Solutions realising proceeds of £0.7 million and making a return of 1.3x cost

· Purchased 400,000 Ordinary Shares of 10p at a price of 70p per share to be held in Treasury

· One partial realisation: Cerillion plc, realising proceeds of £1.9 million and making a return of 4.2x cost.

National Storage Mechanism

A copy of the Annual Report and Financial Statements and the separate circular containing the AGM notice will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at https://data.fca.org.uk/#/nsm/nationalstoragemechanism .

Corporate Information

Directors Sarah Fromson (Chairman)‡ Anthony Townsend Timothy Farazmand** Malcolm Groat*† Secretary Gresham House Asset Management Ltd Registered Office 5 New Street Square London EC41 3TW Investment Manager Gresham House Asset Management Ltd 5 New Street Square London EC41 3TW Registered Number 04115341 ‡ Chairman of the Nomination Committee * Chairman of the Audit Committee ** Chairman of the Management Engagement & Remuneration Committee † Senior Independent Director

Registrars and Transfer Office Computershare Investor Services plc The Pavilions Bridgwater Road Bristol BS99 6ZZ Tel: [phone] Brokers Panmure Gordon & Co One New Change London EC4M 9AF Tel: [phone] Auditors KPMG LLP Saltire Court 20 Castle Terrace Edinburgh EH1 2EG Solicitors Dickson Minto W.S. Broadgate Tower 20 Primrose Street London EC2A 2EW VCT Status Adviser PricewaterhouseCoopers LLP 1 Embankment Place London WC2N 6RH Website www.baronsmeadvcts.co.uk

END

N either 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.

 

END

 

 

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