Annual Financial Report

RNS Number : 6955U

Baronsmead Second Venture Trust PLC

06 December 2021

 

Baronsmead Second Venture Trust plc

Annual Report and Audited Financial Statements

for the year ended 30 September 2021

The Directors of Baronsmead Second Venture Trust plc are pleased to announce the Annual Financial Report for the year ended 30 September 2021. The Annual Report and Financial Statements can be obtained from the following website:  www.baronsmeadvcts.co.uk .

Financial highlights

· Net asset value ("NAV") total return of 406.2p to shareholders for every 100.0p invested at launch (January  2001).

· NAV per share increased 29.3 per cent to 90.8p before deduction of dividends for the financial year ended 30 September 2021.

· Annual tax free dividend yield of 9.3 per cent based on 6.5p dividends paid (including proposed final dividend of 3.5p) and opening NAV of 70.2p.

· £17.1 million of investments made into ten new and five follow-on opportunities during the year.

Our investment objective

Baronsmead Second Venture Trust plc ("the Company") 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 net asset value of that financial year.

Key elements of the business model

Access to an attractive, diverse portfolio

 The Company 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.

STRATEGIC REPORT

CHAIRMAN'S STATEMENT

I am delighted to be able to report an increase of 29.3 per cent in the Company's NAV per share, before dividend payments, for the financial year.

After the significant volatility seen in public markets during the first months of 2020, we have seen excellent performance from our AIM-traded investments in the year to 30 September 2021. The unquoted portfolio has also performed well, led by investments in software and technology enabled services companies as well as by a recovery in the value of the multi-site restaurant businesses.

Results

	Pence per ordinary share
NAV as at 1 October 2020 (after final dividend)	70.2
Valuation increase (29.3 per cent)	20.6
NAV as at 30 September 2021 before dividends	90.8
Less: Interim dividend paid on 10 September 2021	(3.0)
Proposed final dividend of 3.5p payable, after shareholder approval, on 4 March 2022	(3.5)
Illustrative NAV as at 30 September 2021 after proposed dividends	84.3

Portfolio review

At 30 September 2021, the Company's direct investment portfolio was valued at £162 million and comprised investments in a total of 82 companies of which 37 are unquoted and 45 are quoted companies. The Company's direct investments in the LF Gresham House UK Micro Cap Fund ("Micro Cap"), LF Gresham House UK Multi Cap Income Fund ("Multi Cap") and in the LF Gresham House UK Smaller Companies Fund ("Small Cap") were valued at £49 million at 30 September. These investments provide further diversity, giving investment exposure to an additional 98 AIM-traded and fully listed companies and thus spreading investment risk across some 180 portfolio companies.

During the 12 months to 30 September 2021, the underlying value of the unquoted portfolio increased by 28 per cent, reflecting the continued strong performance of the majority of investments. The portfolio of directly held AIM investments increased by 52 per cent during the year, recovering significantly from the early impact of the COVID-19 pandemic on public markets.

Our Micro Cap fund delivered a return of 46 per cent, and our Small Cap fund returned 60 per cent, compared to the IA UK Smaller Companies Sector which increased by 51 per cent. The Multi Cap Income fund increased by 33 per cent compared to the IA UK Equity Income Sector that rose by 33 per cent for the 12 months to 30 September 2021.

The strong uplift in the value of the AIM traded holdings emphasises the benefits of having a portfolio with both private unquoted and publicly listed companies. Over the long-term, the return profiles of the quoted and unquoted portfolios have proved complementary, with both asset classes delivering robust performances.

Investments and divestments

The Board is pleased to report that the Company has continued to make new investments despite the disruption of COVID-19 and has invested a total of £17 million in 15 companies over the year. Further details of the new investments made are included in the Manager's review. The new investments in earlier stage opportunities may result in greater volatility in returns from the Company over time. However, the more mature, established portfolio of existing investments should assist in sustaining returns and dividends for shareholders as the new portfolio develops and grows. In addition to the number of holdings, the portfolio is well diversified by sector, with a tilt towards technology, healthcare, and to recurring revenue business models.

There have been several realisations from both the unquoted and quoted portfolio during the year, reflecting the Manager's continued focus on driving liquidity in the portfolio to create realised capital profits to fund current and future dividends for shareholders. For example, the sale of Pho, in the unquoted portfolio, delivered total proceeds of £5.9 million for a gross money multiple of 2.5x cost. The Manager also realised its investment in Wey Education, in the quoted portfolio, which delivered proceeds of £7.1 million for a total gross money multiple of 13.6x cost. The Manager has made a select number of profitable partial realisations of Cerillion plc during the year, resulting in the receipt of proceeds of £3.1 million at an aggregate of 5.6x original invested cost in this listed company. The Company's investment into unquoted Storyshare Holdings was also rolled into Evotix, a much larger business, in July 2021, to build critical mass and improve the future returns prospects given that the investment is currently being held at 0.4x cost.

Mobeus VCTs

The Board was supportive of the acquisition by Gresham House plc of the VCT business of Mobeus Equity Partners LLP in September 2021. This acquisition enhances Gresham House's position within the VCT market, increasing the funds under management across its VCT range to approximately £850 million as at 30 September. The existing Gresham House VCT team is now working alongside the newly acquired Mobeus VCT team in managing the Company's portfolio and the Board is pleased with the progress made thus far in relation the integration of the two teams.

The acquisition enlarges the Gresham House VCT team significantly and the Board believes that the combined platform will enhance the Manager's ability to identify and manage attractive early-stage investments. This is expected to benefit the Company through more consistent and increased rates of unquoted investment which will ultimately support the delivery of attractive long-term performance for the Company's shareholders.

Dividends

The Board is pleased to declare a final dividend of 3.5p per share for the year to 30 September 2021, payable on 4 March 2022. 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 9.3 per cent yield based on the opening NAV per share of 70.2p and is above the target policy of 7 per cent of the NAV per share at the start of the year.

The Company has good levels of realised reserves available to fund future dividends and the Manager continues to focus on selling investments and generating realised profits across the portfolio, which help to sustain the payment of dividends.

Environmental, Social and Governance ("ESG") matters

Environmental, social and governance analysis is embedded into the Company's investment processes 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 analyse, monitor and report on ESG risks and opportunities across the lifecycle of investments. Further information in relation to the Manager's integration of ESG factors in management of the Company's portfolio is set out below in the Strategic Report. Your Board is particularly pleased to note the focus of Gresham House in this area, with the addition of two new ESG and sustainability team members to work alongside the Sustainable Investment Director, Rebecca Craddock-Taylor.

Fundraising

In August 2021, the Board announced its intention to raise new funds to enhance the Company's resources available for new and follow-on investments over the next two to three years. Consequently, in November 2021 the Company launched an offer for subscription to raise £25 million (before costs) with an additional £12.5 million over-allotment facility available as required. As at the date of this statement there has been £15.5 million invested by shareholders and the offer remains open until 29 March 2022 unless filled earlier. We would like to thank existing shareholders for their continued support and to welcome new shareholders.

Annual General Meeting ("AGM")

The Company's last AGM was held as a hybrid meeting on 16 February 2021, due to government restrictions on public gatherings at that time. This year, pending any future changes in restrictions, we look forward to holding an AGM in person at 11.00am on 16 February 2022 at Saddlers' Hall, 40 Gutter Lane, London, EC2V 6BR. As usual I will present my own review of the year and will then be joined by the Manager. We would be delighted if you would join us for light refreshments afterwards.

For any shareholders that do not wish to attend in person, we will be live streaming the AGM and Manager's presentation. Registration details for the live stream will be included in the Notice of AGM. Voting will not be available via the   online streaming service and we encourage shareholders to exercise their votes by submitting their proxy electronically or by post. The Directors appreciate the engagement with shareholders that takes place at the AGM and encourage shareholders to submit any questions to the Board in advance of the meeting. Shareholders can submit questions up until noon on 15 February 2022 in the following ways:

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

· By telephone: contact Investor relations on 020 7382 0999

Change of auditor

The Audit and Risk Committee has considered the external audit arrangements and held an audit tender process in early 2021. Following the conclusion of this process, the Audit & Risk Committee has appointed BDO LLP as the Company's auditor and KPMG LLP has retired with effect from 28 May 2021.

Director changes

We have welcomed a new director to the Board this year, Graham McDonald. Graham was appointed at the Company's AGM in February 2021 and brings extensive private equity experience and market knowledge to our Company.

Outlook

Although the UK has been efficient in its vaccination program, the COVID-19 pandemic continues to impact us all. We continue to monitor developments and any potential impact on the portfolio but are encouraged by the level of resilience already demonstrated by our investee companies and also by our key service providers.

The disruption and market dislocation has also provided, and will keep on providing, investment opportunities and the Manager remains focused on investing in businesses with strong fundamental characteristics which should continue to grow consistently throughout the economic cycle.

Overall, the economy has rebounded strongly following the sharp decline in activity and fall in public markets immediately after the first national lockdown in March 2020. However, the ongoing recovery continues to be uneven as the UK government's COVID-19 support packages are progressively withdrawn and inflationary and supply chain pressures flow through the economy. The Manager anticipates this will lead to increased public market volatility and, in some sectors reliant on physical goods, more uncertainty over the deliverability of short-term sales forecasts. Operating margin pressure due to wage inflation is also expected.

Despite the potential economic headwinds, the Board continues to believe it is a good time to be investing in earlier stage, innovative and high growth potential businesses looking to take advantage of changes in consumer behaviour and the disruption of traditional supply chains being driven by technology. The level of interesting investment opportunities being reviewed by the Manager continues to be strong. As the earlier stage portfolio continues to mature, there is also an increase in existing high potential portfolio companies looking for follow-on capital to support future growth.

Sarah Fromson

Chairman

6 December 2021

MANAGER'S REVIEW

This year has seen a strong overall performance from the investment portfolio despite continued uncertainty caused by COVID-19. The portfolio is well diversified, with exposure to over 180 quoted and unquoted companies, and has delivered an increase in net asset value of 29.3 per cent over the year.

PORTFOLIO REVIEW

Overview

The net assets of £248 million were invested as follows:

Asset class	NAV (£m)	% of NAV*	Number of Investees**	% return in the year***
Unquoted	60	24	37	28
AIM-traded companies	102	41	45	52
LF Gresham House UK Micro Cap Fund	34	14	51	46
LF Gresham House UK Multi Cap Income Fund	9	4	47	33
LF Gresham House UK Smaller Companies Fund	6	2	49	60
Liquid assets #	37	15	N/A	-
Total	248	100	229	-

* By value as at 30 September 2021.

** Includes investee companies with holdings by more than one fund. Total number of individual companies held is 180.

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

^# 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 a commentary the key highlights in both the unquoted and quoted portfolios.

Investment activity - unquoted and quoted

The Company's investment strategy is primarily focused on companies operating in parts of the economy that we believe are benefiting from long-term structural growth trends and in sectors where we have deep expertise and network. The amount of capital invested in each business is matched to the scale, maturity and underlying risk profile of the company seeking investment.

During the year, £17.1 million was invested in 15 companies including ten new additions to the portfolio and five follow-on investments. Below are descriptions of some of the new investments made:

· Investments were made into eConsult Ltd (unquoted) and Metrion Biosciences Ltd (unquoted), both specialist healthcare providers. eConsult provides a clinically led online consultation service to digitally triage patients, reducing the number of face-to-face consultations required, while Metrion is a Contract Research Organisation focused on delivering a range of high-quality ion channel drug discovery services.

· Investments into RevLifter Ltd (unquoted), Scurri Web Services Ltd (unquoted) and Patchworks Ltd (unquoted) follow our focus on companies supporting the shift to e-commerce. RevLifter has developed an Artificial Intelligence ("AI") platform using advanced behavioural analytics to deliver tailored promotions to consumers, Scurri provides a cloud-based logistics management platform, and Patchworks provides integration software to the multiple operational systems used by e-commerce businesses.

· Three new quoted investments were completed during the year. These companies also operate in our core investment focus areas of niche software and pharmaceutical outsourced service providers. Crimson Tide plc provides a field service management software platform and service, Crossword Cybersecurity plc sources and develops academic ideas into commercial cyber security products and services; andDeepverge plc is a software tool that joins technology platforms with partners in AI, clinical research, medical devices, life science and environmental science.

The Company made additional investments into five existing portfolio companies, one quoted and four unquoted, across the year. This is consistent with the investment strategy of continuing to back our high potential assets with further capital to support future growth. We anticipate the level of follow-on investment will continue to grow as the earlier stage portfolio continues to mature.

Unquoted portfolio

Performance

The unquoted portfolio has performed well during the year, increasing in value by 28 per cent. There has been ongoing disruption due to COVID-19, particularly affecting our multi-site nursery chain, travel businesses and casual dining restaurants, driven by the national lockdowns and social distancing requirements. However revenues have bounced back strongly since the economy reopened. In aggregate, we have seen consistently robust performance in our technology, healthcare and services companies within the portfolio, especially those with recurring or contracted revenue business models with good visibility over future revenues and cashflows.

As Manager we remain highly engaged with the management teams within the portfolio, sharing insight and best practice to help them both manage risk and spot opportunities in a quickly changing environment. We have continued to invest in our in-house talent and technology functions to support our portfolio companies, which alongside our extensive network of earlier stage, high growth company experts, ensure we are well positioned to help our portfolio companies develop and scale.

Divestments

The Company successfully realised its investment in Pho in August 2021, delivering £5.9 million in proceeds and an initial investment return of 2.5x¹. The deal includes an earn-out structure that could increase the total deal return to an estimated 3.0x¹ original invested cost. Pho is a casual restaurant chain serving Vietnamese street food, and although it was significantly affected by the government restrictions during the COVID-19 pandemic, its differentiated consumer proposition and rapidly growing sales in the home delivery channel resulted in a strong trading recovery. The Company also successfully realised its investment in Ten10 in October 2020, delivering proceeds of £7.3 million and an overall investment return of 3.7x¹.

During the year, the Company also rolled its investment in Storyshare Holdings Limited into Evotix Limited. The Storyshare product integrates well with the Evotix offering and we believe the customer synergies and the larger SHE business will enhance investment return prospects for the Company's shareholders as this investment is currently being held at 0.4x¹ cost.

¹   All mutiples are quoted gross.

Quoted portfolio (AIM-traded investments)

Performance

The quoted portfolio has performed exceptionally well, increasing 52 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 benefitted from trends such as digital transformation that have been accelerated by the pandemic. Significant positive contributions came from: Cerillion, driven by robust results and forecast upgrades during the year underpinned by new business; Netcall, as revenue growth accelerated and earnings quality improved due to an increasing proportion of contracted recurring income; and Ideagen, which re-rated positively due to strong resilient earnings and increased scale in its recurring revenue base.

Detractors from performance were LoopUp, due to earnings underperforming market expectations; Cloudcall Group, a telephony software provider to the recruitment sector which was significantly impacted by COVID-19; and Rosslyn Data Technologies which underperformed market expectations although we remain positive about the long term opportunity as it evolves its management team and go-to-market strategy with support from the Manager.

We closely monitor our AIM portfolio with a rolling programme of independent reviews of the most significant AIM holdings and 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 £10.9 million during the year following two full and one partial realisation. Collagen Solutions was fully realised following a takeover by Rosen's Diversified, returning 1.3x cost in November 2020. The Company's investment in Wey Education was also fully realised following a takeover by Inspired Education Holdings, a private equity backed trade buyer, returning 13.6x cost, the highest money multiple return in the history of the Trust, and delivering proceeds of £7.1million. The opportunity to crystallise some profits was taken for Cerillion plc; over the course of the year proceeds of £3.1million were realised at 5.6x cost.

Collective Investment Vehicles

The Manager believes that 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") are a core component of the Company's portfolio construction. These investments provide shareholders with additional diversification through exposure to an additional 98 underlying companies, 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.

Over the year Micro Cap delivered a 46 per cent return, Multi Cap delivered 33 per cent and the Small Cap fund delivered 60 per cent.

Micro Cap and Multi Cap are both highly rated by independent ratings agencies. Each fund has performed well on an absolute basis during the year and has performed in line with its respective peer group. Micro Cap's long term cumulative performance has been consistently top quartile within the IA UK Smaller Companies sector and it is the sixth best performing fund over the past 10 years. Multi Cap has been the top performing fund within the IA UK Equity Income sector over three years and since launch in June 2017. Small Cap has also achieved top quartile cumulative performance since launch in 2019, and once it has a three-year track record it will be marketed externally.

Liquid assets (cash and near cash)

The Company had cash and liquidity OEICs of approximately £38.7 million at the year-end. This asset class is conservatively managed to take minimal or no capital risk.  

ESG highlights

The Manager has continued to invest in its sustainable investment team, with the addition of two new members during the year. The first ESG survey of our unquoted portfolio companies was also completed during the year. The survey identified common challenges across the portfolio as well as establishing benchmark metrics for future development and reporting. Further details on our ESG approach and policies can be found below in the strategic report.  

Outlook

Despite the economic and social challenges over the past twelve months, the opportunity to invest and support growth in entrepreneurial earlier-stage UK businesses remains strong. Our focus on investing in parts of the economy which are experiencing structural growth and in sectors where we have extensive talent networks and domain expertise continues to identify attractive investment opportunities. Many of our management teams have spotted the opportunity to innovate and accelerate growth to take advantage of the changes and disruption across the market. We expect the rate of follow-on investment to increase across the portfolio as these companies scale and require additional capital to realise their growth plans.

As expected, several parts of the portfolio have faced trading headwinds. Demand within our consumer travel and several other service-based businesses remain impacted by the shift in consumer and corporate spending driven by COVID-19. In certain sectors, we expect more variability in company trading and a general increase in wage inflation and supply chain disruption going forward. However, the portfolio continues to be highly diversified and overall is defensively positioned.

Following the integration of the Mobeus VCT team during October 2021, the deal team consists of over 20 investment professionals. Significant investment has also been made to strengthen our in-house talent and technology capability to help convert new deal opportunities and to add value to our portfolio companies post investment. We remain extremely positive in the ability of more agile, fast moving earlier stage companies to outperform in a more uncertain economic environment and in our ability to invest capital and deliver attractive long-term returns for the Company.

Gresham House Asset Management Ltd

Investment Manager

6 December 2021

 

INVESTMENTS IN THE YEAR

Company	Location	Sector	Activity	Book cost £'000
Unquoted investments New
eConsult Ltd	Surrey	Healthcare & Education	Online consultation provider used by GP practices and hospitals	2,599
Scurri Web Services Ltd	London	Technology	Cloud-based delivery management platform	2,293
Patchworks Ltd	Nottingham	Technology	Leading integration platform for fast-growing retail and ecommerce businesses	1,716
Airfinity Ltd	London	Healthcare & Education	Provides real time life science intelligence as a subscription service	1,559
Metrion Biosciences Ltd	Cambridge	Healthcare & Education	Ion channel drug discovery and safety assessment services provider	1,192
Counting Ltd	London	Business Services	Banking and accounting software for small businesses	1,059
RevLifter Ltd	London	Technology	A-I platform using advanced behavioural analytics to deliver tailored promotions to users	779
Follow-on
Glisser Ltd	London	Business Services	Audience engagement software	795
TravelLocal Ltd	London	Consumer Markets	Online travel agent specialising in tailor-made holidays	530
Equipsme (Holdings) Ltd	London	Business Services	SME health insurance plans provider	370
Munnypot Ltd	West Sussex	Technology	Automated online investment platform	16
Total unquoted investments				12,908
AIM-traded investments New
Deepverge plc	York	Healthcare & Education	Environmental and life sciences group	1,590
Crossword Cybersecurity plc	London	Technology	Commercialisation of university research-based cyber security software and consulting	1,282
Crimson Tide plc	Kent	Technology	Mobile business solutions	668
Follow-on
CloudCall Group plc	Leicester	Technology	Provides cloud software and integrated communications services	606
Total AIM-traded investments				4,146
Total investments in the year				17,054

REALISATIONS IN THE YEAR

Company		First investment date	Original book cost# £'000	ProceedsƗ £'000	Overall multiple return
Unquoted realisations Ten10 Group Ltd	Full trade sale	Feb 15	2,331	7,254	3.7*
Pho Holdings Ltd	Full trade sale	Jul 12	2,422	5,902	2.5*
Total unquoted realisations			4,753	13,156	2.8*
AIM-traded realisations Wey Education plc	Takeover	Dec 15	523	7,091	13.6
Cerillion plc	Market sale	Jul 15	564	3,139	5.6
Collagen Solutions plc	Takeover	Mar 17	551	716	1.3
Total AIM-traded realisations			1,638	10,946	6.7
Total realisations in the year			6,391	24,102	3.8

^#  Residual book cost at realisation date.

* Includes interest/dividends received, loan note redemptions and partial realisations accounted for in prior periods.

^Ɨ Proceeds at time of realisation including interest.

Ten largest investments

The top ten investments by current value at 30 September 2021 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: July 2015

Total original cost: £2,974,000

Total equity held: 13.3%

Baronsmead Second Venture Trust only

Original cost: £1,636,000

Valuation: £16,572,000

Valuation basis: Bid Price

Income realised in the year: £134,000

% of equity held: 7.3%

Voting Rights: 7.3%

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:	235	203

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

2. 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: 23.9%

Baronsmead Second Venture Trust only

Original cost: £2,616,000

Valuation: £12,869,000

Valuation basis: Bid Price

Income recognised in the year: £37,000

% of equity held: 9.9%

Voting Rights: 9.9%

Year ended 30 June

	2021	2020
	£ million	£ million
Sales:	27.2	25.1
Pre-tax profits:	1.0	0.5
Net Assets:	24.6	22.9
No. of Employees:	235	234

Source: Netcall plc, Annual Report and Accounts, 30 June 2021

* Includes Baronsmead VCTs only

3. Carousel Logistics Ltd

Sittingbourne

Unquoted

www.carousel.eu 

All funds managed by Gresham House

First investment: October 2013

Total original cost: £4,246,000

Total equity held: 26.7%

Baronsmead Second Venture Trust only

Original cost: £2,336,000

Valuation: £10,699,000

Valuation basis: Earnings Multiple

Income recognised in the year: £210,000

% of equity held: 14.7%

Voting rights: 14.7%

Year ended 31 December

	2020	2019
	£ million	£ million
Sales:	51.3	51.6
Pre-tax profits:	(0.3)	(2.3)
Net Assets:	(5.6)	(6.4)
No. of Employees:	225	283

Source: Carousel Logistics Holdings Limited, Annual Report and Financial Statement 31 December 2020

4. 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: 1.9%

Baronsmead Second Venture Trust only

Original cost: £720,000

Valuation: £8,422,000

Valuation basis: Bid Price

Income recognised in the year: £9,000

% of equity held: 1.0%

Voting rights: 1.0%

Year ended 30 April

	2021	2020
	£ million	£ million
Sales:	65.6	56.6
Pre-tax profits:	0.8	(0.1)
Net Assets:	125.6	76.9
No. of Employees:	612	537

Source: Ideagen plc, Annual Report and Accounts, 30 April 2021

5. IDOX plc

Reading

Quoted

www.idoxgroup.com

All funds managed by Gresham House

First investment: May 2002

Total original cost: £1,642,000*

Total equity held: 4.9%

Baronsmead Second Venture Trust only

Original cost: £1,028,000

Valuation: £7,753,000

Valuation basis: Traded price

Income recognised in the year: £33,000

% of equity held: 2.5%

Voting rights: 2.5%

Year ended 31 October

	2020	2019
	£ million	£ million
Sales:	68.0	65.5
Pre-tax profits:	2.7	(0.0)
Net Assets:	47.0	44.6
No. of Employees:	637	671

Source: IDOX plc, Annual Report and Accounts, 31 October 2020

* Includes Baronsmead VCTs only

6. IWP Holdings Ltd

London

Unquoted

www.iwpuk.co.uk 

All funds managed by Gresham House

First investment: July 2019

Total original cost: £3,000,000

Total equity held: 9.0%

Baronsmead Second Venture Trust only

Original cost: £1,587,000

Valuation: £5,679,000

Valuation basis: Earnings Multiple

Income recognised in the year: £nil

% of equity held: 4.2%

Voting rights: 6.4%

Year ended 31 March

A full set of accounts is not publicly available as the company is registered in Jersey.

IWP has a network of 24 IFA businesses and has a turnover of c. £24 million (year ended 31 March 2021).

7. Anpario plc

Nottinghamshire

Quoted

www.anpario.com

All funds managed by Gresham House

First investment: November 2006

Total original cost: £966,000

Total equity held: 6.0%

Baronsmead Second Venture Trust only

Original cost: £662,000

Valuation: £5,561,000

Valuation basis: Bid Price

Income recognised in the year: £86,000

% of equity held: 4.1%

Voting rights: 4.1%

Year ended 31 December

	2020	2019
	£ million	£ million
Sales:	30.5	29.0
Pre-tax profits:	5.4	4.4
Net Assets:	37.5	35.6
No. of Employees:	120	114

Source: Anpario plc, Annual Report 31 December 2020

8. Inspired plc

Lancashire

Quoted

www.inspiredenergy.co.uk 

All funds managed by Gresham House

First investment: November 2011

Total original cost: £1,435,000*

Total equity held: 19.8%

Baronsmead Second Venture Trust only

Original cost: £861,000

Valuation: £4,872,000

Valuation basis: Bid Price

Income recognised in the year: £60,000

% of equity held: 2.8%

Voting rights: 2.8%

Year ended 31 December

	2020	2019
	£ million	£ million
Sales:	46.1	43.7
Pre-tax profits:	(4.5)	3.1
Net Assets:	66.3	59.3
No. of Employees:	521	423

Source: Inspired Energy plc, Annual Report and Accounts 2020

* Includes Baronsmead VCTs only

9. 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: 4.9%

Baronsmead Second Venture Trust only

Original cost: £309,000

Valuation: £4,594,000

Valuation basis: Bid Price

Income recognised in the year: £174,000

% of equity held: 2.3%

Voting rights: 2.3%

Year ended 30 June

	2021	2020
	£ million	£ million
Sales:	10.9	10.3
Pre-tax profits:	8.1	8.2
Net Assets:	11.8	12.5
No. of Employees:	17	16

Source: Bioventix plc, Annual Report and Financial Statements 30 June 2021
* Includes Baronsmead VCTs only

10. Happy Days Ltd

Cornwall

Unquoted

www.happydaysnurseries.com
 

All funds managed by Gresham House

First investment: April 2012

Total original cost: £7,600,000

Total equity held: 64.9%

Baronsmead Second Venture Trust only

Original cost: £4,180,000

Valuation: £3,510,000

Valuation basis: Earnings Multiple

Income recognised in the year: £nil

% of equity held: 35.7%

Voting rights: 30.8%

Year ended 31 December

	2020	2019
	£ million	£ million
Sales:	8.9	11.1
Pre-tax profits:	(3.0)	(1.3)
Net Assets:	(12.7)	(9.7)
No. of Employees:	386	393

Source: H. Days Holdings Limited 31 December 2020

PRINCIPAL RISKS AND UNCERTAINTIES

The Board has carried out a robust assessment of the principal and emerging risks and uncertainties facing the Company and has assessed the appropriate measures to be 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 this report.

Principal Risk	Context	Specific risks we face	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 & Risk 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 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 continues to have a significant impact on the performance of the consumer markets sector in particular, with an uneven recovery across all other sectors.	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. This has highlighted the uneven recovery across different sectors, with many businesses facing inflationary and supply chain pressures. The Investment Manager has engaged with management teams to develop plans to mitigate the impact of these pressures.
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 FCA 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 FCA 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 Company Secretary provides a regulatory update at each Board meeting.
Operational	The Company relies on a number of third parties, in particular the 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 the General Data Protection Regulation.	The Board has appointed an Audit and Risk 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 have 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 continues to be 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.

The Company is facing the key emerging risks of climate change and ESG, given the regulatory, operational and potentially reputational implications if not appropriately addressed. In order to address these emerging risks, when looking to make a new investment, the Manager uses an ESG Decision Tool to identify any material ESG risks that need to be managed and mitigated. For further detail, see the full Annual Report.

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 above.

Sustainable Investing

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. Since the company does not have any employees and it has no direct impact on the community or the environment due to its status as a VCT, the company does not maintain specific policies in relation to these matters.

However, the board is conscious of the potential impact of its investments on the environment as well as its social and corporate governance responsibilities. The board and the manager believe that sustainable  investment involves the integration of ESG factors within the investment process and that these factors should be considered alongside financial and strategic issues. The company therefore complies indirectly with ESG requirements through its monitoring of the ESG impact of its investee companies.

Environmental, Social, and Governance update from the Manager

The Manager is committed to sustainable investment as an integral part of its business strategy. During 2021, The Manager has taken further steps to formalise its approach to sustainability and has put in place several policies and processes to ensure environmental, social and governance ("ESG") factors and stewardship responsibilities are built into asset management across all funds and strategies, including venture capital trusts.

The Manager published its inaugural Sustainable Investment Report in 2021, that along with existing asset specific policies, including the Public Equity Policy and the Private Equity Policy, can be found on the Gresham House website. These reports and policies cover the Manager'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 Manager formed a Sustainable Investing Committee (SIC) 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

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.

The ten themes are the basis of the ESG Decision Tool which supports the investment team in implementing the commitments made in the sustainable investment policies. The ESG Decision Tool is completed as part of the due diligence process prior to investment for all VCT investments.

The Tool will not tell the Manager whether to invest or not, instead it aims to provide a rational and replicable assessment of key ESG risks which should be considered prior to investment, and to help rank the significance of each risk. It is up to the Manager to decide whether it is sufficiently comfortable with these risks to proceed with an 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.

Sustainable investing - Baseline ESG survey

The Manager has been working over the last year to better understand how well portfolio companies understand relevant ESG risks and how they are addressing them as part of their operations.

Earlier in 2021, the Manager conducted an ESG survey on the unquoted investments to identify a baseline understanding of how portfolio companies think about ESG, and which ESG data is already being reported and monitored.

The results were analysed by the Manager's Sustainable Investment team and overlayed with a well-known sustainability materiality assessment to understand if companies were aware of the most significant ESG risks to their business types.

This is the first time the Manager has issued the ESG survey. The findings have been extremely insightful and will inform the actions the Manager takes to better manage ESG risks and opportunities across the portfolio over the next year. The Manager will then issue the survey again in 2022 to assess improvements in disclosure, understanding and action across the portfolio.

Results

Some of the core findings, how they compare with the Sustainable Investment Team's best practice recommendations, and consequently the actions the investment teams will take to address any material areas of divergence are set out in the full Annual Report.

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. The Manager will almost always take a board seat or become a board observer, which ensures sufficiently frequent levels of communication with the management team.

The Manager has published its Engagement and Voting Policy on its website, which sets out its 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 in 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's voting decisions are based on the course of action that will be in the best interest of the investee company and 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.

For the twelve months to 30 September 2021, the Manager was subject to votes on 2,211 issues. Of these, the Manager voted for 91.1 per cent of resolutions, against 3.3 per cent, abstained on 0.4 per cent and did not vote on 5.2 per cent.

In Q3 2021, the Manager voted on all 521 resolutions, voting for on 93.9 per cent of occasions, against on 4.6 per cent and abstaining on 1.5 per cent. Of the 24 votes against, nine were because the resolutions conflicted with the Manager's house policy, notably to vote against political donations, while the others were on M&A and liquidation issues that went against the investment teams' philosophy.

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.

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.

Other matters

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, which is set out in the full Annual Report, 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 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 PricewaterhouseCooper LLP ("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 Manager, they report directly to the Board.

The principal tests are summarised below. Throughout the year ended 30 September 2021 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 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 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 2021 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.

Nil performance fee is payable for the year to 30 September 2021 (2020: £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, 94 executives have invested a total of £1.1 million in 79 companies. At 30 September 2021, 48 of these investments have been realised generating proceeds of £375 million for the Baronsmead VCTs and £20 million for the VCT incentive scheme. For Baronsmead Second Venture Trust the average money multiple on these 45 realisations was 1.8x cost. Had the VCT incentive shares been held instead by the Baronsmead VCTs, the extra return to shareholders would have been the equivalent of 3.6p a share over 17 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 £254,000 (2020: £204,000) advisory fees, £375,000 (2020: £360,000) directors' fees for services provided to companies in the investment portfolio and incurred abort costs of £8,000 (2020: £11,000) with respect to investments attributable to the Company.

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 2024.

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 the Company's 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.

The Board has considered the ability of the Company to raise funds and deploy capital. Its 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.16 per cent of the NAV and reflected 16 per cent of the 30 September 2021 NAV. Cash balances can fluctuate over time 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 Directors noted 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 2024.

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 the Company 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 £25 million, with an additional £12.5 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 2,100,000 shares were bought in this way during the year to 30 September 2021.

·     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 1,722,000 shares were bought by investors in the Company's existing shares in the year to 30 September 2021.

Directors' duties

Overview

Section 172 of the Companies Act 2006 (the "Act") requires the Directors to act in good faith and in a way that is most likely to promote the success of the Company for the benefit of its shareholders.

Directors must consider the long-term consequences of any decision they make. They must also consider the interests of the various stakeholders of the Company, the impact the Company has on the environment and community, and operate in a manner which maintains their reputation for having high standards of business conduct and fair treatment between shareholders.

Fulfilling this duty naturally supports the Company in its investment objective of achieving long-term investment returns for private investors and helps ensure that all decisions are made in a responsible and sustainable way. In accordance with the requirements of the Companies (Miscellaneous Reporting) Regulations 2018, and the AIC Code, the information below explains how the Directors have individually and collectively discharged their duties under section 172.

To ensure they are aware of and understand their duties, Directors are provided with a detailed induction outlining their legal and regulatory duties as a Director of a UK public limited company upon appointment. They also receive regular regulatory updates and training as appropriate. A Company Secretarial Report is included within the papers of every Board meeting, which reminds the Directors of their duties and emphasises the importance of stakeholder consideration during decision making. Directors also receive technical updates from the Company's advisers and from the Manager on a regular basis.

The Directors have access to the advice and services of the Company Secretary and a range of other reputable service providers and, when deemed necessary, the Directors may seek independent professional advice in the furtherance of their duties, at the Company's expense.

The Company has a Schedule of Matters Reserved for the Board which describe the Board's duties and responsibilities. Terms of Reference of the Board's Committees are in place, which outline the duties of those Committees that are delegated from the Board, including their statutory and regulatory responsibilities. Both the Schedule of Matters Reserved for the Board and the Committees' Terms of Reference are reviewed on at least an annual basis.

The Audit & Risk Committee has responsibility for the ongoing review of the Company's risk management and internal controls. To the extent that they are applicable, risks related to the matters set out in Section 172 are included within the Company's Risk Register and are subject to regular review and monitoring.

Decision making

The importance of stakeholder considerations, in the context of decision making, is taken into account at every Board meeting. All discussions involve careful consideration of the longer-term consequences of any decisions and their implications for stakeholders. Further information on the role of the Board in safeguarding stakeholder interests and monitoring ongoing investment activity can be found below.

Stakeholder engagement

Following a comprehensive review by the Board, which regularly keeps stakeholder engagement mechanisms under review, it was agreed that, as the Company is an externally managed Venture Capital Trust and does not have any employees or customers, the Company's key stakeholders are:

· The Company's shareholders

· The Manager

· The portfolio of investee companies, and the wider communities in which they operate

· HMRC and the Company's governing bodies, including the FCA

· The Association of Investment Companies ("AIC")

· A range of reputable external service providers

Details of how the Board seeks to understand the needs and priorities of these stakeholders and how these are taken into consideration during its discussions as part of its decision-making, are described in the table below:

Stakeholder Group	Importance	Board Engagement
Shareholders	Continued shareholder support is critical to the sustainability of the Company and delivery of the long-term strategy of the business.	The Board is committed to maintaining open channels of communication with shareholders and during the year has developed various meaningful ways of engaging with shareholders to understand their views. These include: ● Annual General Meeting ("AGM") - The Company welcomes and encourages attendance and participation from shareholders at the AGM and values any feedback and questions it may receive. The Company successfully held its first virtual AGM on 16 February 2021. The AGM was held virtually due to government restrictions on public gatherings imposed at that time. Shareholders were invited to raise questions in advance of, during and after the AGM and the Company was delighted to answer those questions received. The Chairman presented on the Company's outlook for 2021 and a joint investment management presentation to shareholders of the Company and Baronsmead Venture Trust Plc was held on the same day. The Company's forthcoming AGM will take place on 16 February 2022. The Company intends to hold this AGM in person, with shareholders who are unable to attend in person given the option to watch the AGM live. It must be noted that those who participate virtually will not be able to vote during the course of the AGM and are asked to submit their votes by proxy in advance of the AGM. Further information regarding the 2022 AGM can be found in the Chairman's Statement above and within the Notice of AGM which is being sent to shareholders separately from this Annual Report. ● Publications - The Company's Annual and Half-Yearly Reports are made available on the Company's website (www.baronsmeadvcts.co.uk) and sent to shareholders. These publications provide shareholders with information regarding the Company's business model, strategy and investment portfolio and provide a clear understanding of the Company's financial position. This is supplemented by the monthly publication of the NAV on the Company's website and quarterly factsheets. Feedback and questions received by the Company from shareholders enables the Company to improve its reporting, which in turn helps to deliver transparent and understandable updates. ● Shareholder communication and shareholder concerns - The Manager communicates with shareholders periodically and shareholders are welcome to raise any comments, issues or concerns with the Board at any time. Shareholders are invited to do so by writing to the Chairman at the registered office. Malcolm Groat, as Senior Independent Director, is also available to shareholders if they have concerns that contact through the normal channel of the Chairman has failed to resolve or for which such contact is inappropriate.
The Manager	The Manager's performance is critical for the Company to successfully deliver its investment strategy and meet its objective to achieve long-term investment returns for private investors.	The Board invites the Manager to attend Valuation Forums, Board meetings and Committee meetings to update Directors on the performance of the portfolio and execution of the investment strategy. The Board holds detailed discussions with the Manager on all key strategic and operational topics on an ongoing basis. In addition, the Chairman regularly meets with the Manager to ensure a close dialogue is maintained. In line with the Company's culture, the Board recognises the importance of working together with the Manager in such a way that: · encourages open, honest, and collaborative discussions at all levels, allowing time and space for original and innovative thinking; · draws on Board members' individual experience and knowledge to support and challenge the Manager in its monitoring of and engagement with portfolio investee companies; · ensures that the impact on the Manager is fully considered and understood before any business decision is made; and · ensures that any potential conflicts of interest are avoided or managed effectively.
The portfolio of investee companies	The Company invests in growth businesses, whether unquoted or traded on AIM, which are primarily based in the UK. Investments are made selectively across a range of sectors to meet the Company's investment objectives and in accordance with VCT legislation.	Day-to-day engagement with the portfolio of investee companies is undertaken by the Manager, so a transparent and objective relationship between the Board and the Manager is vital. For unquoted and larger AIM holdings the Manager is an influential and engaged shareholder (on behalf of the Company) and Manager representatives often join the boards of these companies. At each scheduled Valuation Forum, the Board receives detailed updates from the Manager covering the portfolio construction and performance, progress and trading within the underlying portfolio companies and valuation recommendations. The Board is also provided with investment pipeline reports, covering both new deals and potential follow-on investments at Board meetings.
External service providers	To function as a VCT with a premium listing on the London Stock Exchange, the Company relies on a diverse range of highly regarded advisers for support in meeting all relevant obligations.	The Board maintains regular contact with its external providers and receives reports from them at Board and Committee meetings, as well as outside of the regular meeting cycle. Their advice, as well as their needs and views are routinely considered. During the period, the Management Engagement and Remuneration Committee formally assessed the external service providers' performance, fees and continuing appointment to ensure that they continue to function at an acceptable level and are appropriately remunerated to deliver the expected level of service. The Audit & Risk Committee reviews and evaluates the control environments in place at each service provider as appropriate. In particular, during the COVID-19 lockdown environment the Manager and Audit & Risk Committee received confirmation that all service providers had effectively implemented their Business Continuity Plans and were able to work remotely, with no impact to the services provided to the Company or to the internal controls in place at the providers.
HMRC and governing bodies	The Company must comply with HMRC VCT rules and must comply or explain its adherence to the AIC Code. HMRC and the AIC have a legitimate interest in how the Company operates in the market and treats its shareholders.	The Board regularly considers how it meets regulatory and statutory obligations and follows voluntary and best-practice guidance, including how any governance decisions it makes impacts the Company's stakeholders, both in the shorter and in the longer-term. In particular, the Audit & Risk Committee receives confirmation from its VCT Status Adviser regarding compliance with HMRC's VCT rules and at every Board meeting the Board is presented with a Company Secretarial Report outlining the latest governance updates to keep the Board abreast of any relevant regulatory changes. The Company Secretary reviews the Company's ongoing compliance with the AIC Code, on at least an annual basis, which informs the Company's corporate governance disclosures in the Annual Report. In addition, the Board receives reports from the Manager and Auditor on their respective regulatory compliance and any inspections or reviews that are commissioned by regulatory bodies. The Company ensures it meets all required HMRC obligations and payments promptly and as they fall due.

The mechanisms for engaging with stakeholders are kept under review by the Directors and discussed at Board meetings to ensure they remain effective. Examples of the Board's principal decisions during the year, and how the Board fulfilled its duties under Section 172, and the related engagement activities, are set out below.

Principal Decision	Long-Term impact	Stakeholders and Engagement
Consideration of the Company's culture, purpose and values	Establishing and maintaining a healthy corporate culture within the Company will aid delivery of its long-term strategy.	During the reporting period, the Board considered the Company's culture, purpose and values. The Company seeks to invest in innovative, high growth quoted and unquoted companies, providing capital and expertise at a critical stage of their development. The Company believes that the successful development of these companies will be crucial to the advancement of the UK economy. The Manager has an extensive entrepreneurial network and specialist skills which are utilised both to source new investment opportunities as well as to support the portfolio company management teams to deliver their growth plans. The investment strategy is based on backing the highest potential companies operating in sectors and markets which are benefiting from long-term structural growth trends, whilst recognising the risk management benefits of diversification in portfolio construction. The Company has several policies in place to maintain a culture of good governance including those relating to Directors' conflicts of interest and Directors' dealings in the Company's shares. The Board assesses and monitors compliance with these policies as well as the general culture of the Board during the annual Board evaluation process which is undertaken by each Director. This is a formal internal process coordinated by the Chairman, given the small size of the Board.
Continued focus on the Manager's ESG impact	The Board recognises that sound ESG policies, when embedded with appropriate governance and responsible business practices, help generate long-term financial performance and contribute to the wider community.	The Board has continued its focus on responsible business practices and the impact of ESG matters. The Board notes that the Manager has added to resources in this area and has significantly developed its ESG policy, its ESG investment tool and processes in the past 12 months. The Board has received a detailed presentation from the Manager's sustainable investment director on its responsible business practices and the methods used to evaluate ESG risks as part of its investment processes. The Board acknowledges and supports the increased focus by the Manager on ensuring new and existing investee companies are adopting sound ESG policies and will continue to monitor the Manager's progress.
Board succession planning	Effective succession planning, leading to the refreshment of the Board and its diversity is necessary for the long-term success of the Company.	The Board has approved and adopted a Tenure and Reappointment Policy (the "Policy"). In accordance with the Policy, the Board will seek to recruit a Director approximately every four years, with no Director expected to serve on the Board for longer than nine years. Succession planning was a significant focus for the Board during the year ended 30 September 2021 and further detail regarding the changes to the Board during the financial year can be found in the Directors' Report in the full Annual Report. Details of the composition of the Board can also be found in the corporate governance statement in the full Annual Report.
Approval of fundraising	Providing shareholders and potential new investors the opportunity to subscribe for shares in BSVT, which in turn provides opportunities for Company growth and increased investor engagement.	In deciding to launch a fundraising during the reporting period, the Board considered: · the ability to adhere to the Company's dividend policy; · the effect on the NAV and the ability of the Company to be able to meet HMRC's VCT investment rules and timelines; · the new investment pipeline; · the costs involved in issuing a prospectus and of fundraising; and · the advantages and disadvantages of a joint prospectus across the two Baronsmead VCTs which Gresham House advises.

The Strategic Report has been approved by the Board of Directors.

On behalf of the Board

Sarah Fromson

Chairman

6 December 2021

Extracts from the Directors' Report

Shares and Shareholders

Share capital

Pursuant to the prospectus published by the Company on 16 September 2020 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 £17.5 million, the Company issued a total of 40,593,158 ordinary shares in the year ended 30 September 2021 by way of five allotments, raising approximately £32.4 million. Details of these allotments are as set out below:

· On 10 November 2020, the Company issued 16,956,777 ordinary shares under the first allotment at an issue price of 77.90 pence per share. The shares were admitted to trading on 16 November 2020.

· On 17 December 2020, the Company issued 4,045,996 ordinary shares under the second allotment at an issue price of 80.90 pence per share. The shares were admitted to trading on 22 December 2020.

· On 29 January 2021, the Company issued 7,731,966 ordinary shares under the third allotment at an issue price of 84.40 pence per share. The shares were admitted to trading on 4 February 2021.

· On 26 February 2021, the Company issued under the fourth allotment 3,812,670 ordinary shares at an issue price of 82.20 pence and were admitted to trading on 4 March 2021.

· On 18 March 2021, the Company issued 8,045,749 ordinary shares under the fifth allotment at an issue price of 84.90 pence per share. The shares were admitted to trading on 23 March 2021.

At the AGM held on 16 February 2021, 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 40,031,296 ordinary shares. During the year, the Company bought back a total of 5,685,643 ordinary shares to be held in Treasury, representing 2.1 per cent of the issued share capital as at 30 September 2021, with an aggregate nominal value of £568,564. The total amount paid for these shares was £4,535,516. Since the 30 September 2021, no shares have been bought back by the Company. The Company has remaining authority to buy back 36,441,439 shares under the resolution approved at the AGM in 2021.

During the year, the Company sold 815,000 ordinary shares from Treasury. The total amount received by the Company for these shares was £650,692. 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	312,059,812	100.00	£31,205,981.20
Held in Treasury	29,085,727	9.32	£2,908,572.70
In circulation	282,974,085	90.68	£28,297,408.50

The total voting rights as at 30 September 2021 were 282,974,085 and there have been no changes to this figure between 30 September 2021 and the date of this report.

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 and 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 2021, all of which remain valid, can be found in the previous Notice of AGM.

The Company 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 2021:

Dividends	£'000
Interim dividend of 3.0p per ordinary share paid on 10 September 2021	8,496
Final dividend of 3.5p per ordinary share to be paid on 4 March 2022*	9,904
Total dividends paid for the year	18,400

* Calculated on shares in circulation as at 30 September 2021.

Subject to shareholder approval at the AGM on 16 February 2022, a final dividend of 3.5p per share will be paid on 4 March 2022 to shareholders on the register at 3 February 2022.

Annual General Meeting

The AGM will be held on 16 February 2022. 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.

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 adverse impact caused by the COVID-19 outbreak globally is still apparent. The Board nevertheless considers the Company to be well placed 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.

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 are approved. As at 30 September 2021, the Company held cash balances and investments in readily realisable securities with a value of £38.7 million, representing 15.6 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   current economic environment and other, potential 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.

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 ensuring the Annual Report and the financial statements are made available on a website. Financial statements are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.

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 Annual 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

6 December 2021

NON-STATUTORY ACCOUNTS

The financial information set out below does not constitute the Company's statutory accounts for the periods ended 30 September 2020 and 2021 but is derived from those accounts. Statutory accounts for 2020 have been delivered to the Registrar of Companies, and those for 2021 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 2021

		Year ended 30 September 2021			Year ended 30 September 2020
	Notes	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains on investments	2.3	-	59,071	59,071	-	8,680	8,680
Income	2.5	3,821	-	3,821	4,008	-	4,008
Investment management fee	2.6	(1,424)	(4,272)	(5,696)	(1,078)	(3,235)	(4,313)
Other expenses	2.6	(665)	-	(665)	(674)	-	(674)
Profit before taxation		1,732	54,799	56,531	2,256	5,445	7,701
Taxation	2.9	(108)	108	-	(275)	275	-
Profit for the year, being total comprehensive income for the year		1,624	54,907	56,531	1,981	5,720	7,701
Return per ordinary share:
Basic and diluted	2.2	0.59p	19.96p	20.55p	0.82p	2.36p	3.18p

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").

The notes below form part of these financial statements.

Statement of changes in equity

For the year ended 30 September 2021

	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 2020		27,146	46,775	30,890	75,290	2,216	182,317
Profit after taxation		-	-	46,591	8,316	1,624	56,531
Net proceeds of share issues, share buybacks & sale of shares from treasury		4,060	27,456	-	(3,908)	-	27,608
Dividends paid	2.4	-	-	-	(16,000)	(2,082)	(18,082)
At 30 September 2021		31,206	74,231	77,481	63,698	1,758	248,374

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

The notes below form part of these financial statements.

Balance sheet

As at 30 September 2021

Company number: 04115341

	Notes	As at 30 September 2021 £'000	As at 30 September 2020 £'000
Fixed assets
Investments	2.3	238,100	179,932
Current assets
Debtors	2.7	109	571
Cash at bank		12,312	3,108
		12,421	3,679
Creditors (amounts falling due within one year)	2.8	(2,147)	(1,294)
Net current assets		10,274	2,385
Net assets		248,374	182,317
Capital and reserves
Called-up share capital	3.1	31,206	27,146
Share premium	3.2	74,231	46,775
Capital reserve	3.2	63,698	75,290
Revaluation reserve	3.2	77,481	30,890
Revenue reserve	3.2	1,758	2,216
Equity shareholders' funds	2.1	248,374	182,317
Net asset value per share
- Basic and diluted	2.1	87.77p	73.74p

The notes below form part of these financial statements.

The financial statements were approved, and authorised for issue, by the board of Directors of Baronsmead Second Venture Trust plc on 6 December 2021 and were signed on its behalf by:

Sarah Fromson

Chairman

Statement of Cash Flows

For the year ended 30 September 2021

	Year ended 30 September 2021 £'000	Year ended 30 September 2020 £'000
Cash flows from operating activities
Investment income received	4,111	3,603
Investment management fees paid	(5,281)	(4,269)
Other cash payments	(680)	(673)
Net cash outflow from operating activities	(1,850)	(1,339)
Cash flows from investing activities
Purchases of investments	(49,314)	(36,999)
Disposals of investments	50,397	30,976
Net cash inflow/(outflow) from investing activities	1,083	(6,023)
Cash flows from financing activities
Gross proceeds of share issues	32,974	18,435
Gross proceeds from sale of shares from treasury	651	657
Gross costs of share buybacks	(4,092)	(3,186)
Costs of share issues	(1,459)	(507)
Costs of share buybacks	(21)	(15)
Equity dividends paid	(18,082)	(15,905)
Costs charged to capital	-	(1)
Net cash inflow from financing activities	9,971	(522)
Increase/(decrease) in cash	9,204	(7,884)
Reconciliation of net cash flow to movement in net cash
Increase/(decrease) in cash	9,204	(7,884)
Opening cash position	3,108	10,992
Closing cash at bank and on deposit	12,312	3,108
Reconciliation of profit before taxation to net cash outflow from operating activities
Profit before taxation	56,531	7,701
Gains on investments	(59,071)	(8,680)
Income reinvested	(179)	-
Decrease/(increase) in debtors	462	(403)
Increase in creditors	407	43
Net cash outflow from operating activities	(1,850)	(1,339)

The notes below form part of these financial statements.

Notes to the Financial Statements

For the year ended 30 September 2021

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, October 2019 and April 2021 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 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 2021 number	30 September 2020 number	30 September 2021 pence	30 September 2020 pence	30 September 2021 £'000	30 September 2020 £'000
Ordinary shares (basic)	282,974,085	247,251,570	87.77	73.74	248,374	182,317

2.2  Return per share

	Weighted average number of ordinary shares		Return per ordinary share		Net profit/(loss) after taxation
	30 September 2021 number	30 September 2020 number	30 September 2021 pence	30 September 2020 pence	30 September 2021 £'000	30 September 2020 £'000
Revenue	275,054,819	242,461,220	0.59	0.82	1,624	1,981
Capital	275,054,819	242,461,220	19.96	2.36	54,907	5,720
Total			20.55	3.18	56,531	7,701

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 Guidelines"). Judgements The key judgements in the fair valuation process are: i)  The Manager's determination of the appropriate application of IPEV Guidelines 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)  Cost of recent investment ii)  Earnings multiple iii)  Offer less 10 per cent The Earnings multiple approach involves more subjective inputs than the Cost of recent investment and Offer approaches and therefore presents a greater risk of over or under estimation. The Cost of recent investment 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 2021 £'000	As at 30 September 2020 £'000
Level 1
Investments traded on AIM	102,394	71,528
Level 2
Investments traded on AIM	-	2,553
Collective investment vehicles	75,701	59,367
Investments listed on LSE	34	42
Level 3
Unquoted investments	59,971	46,442
	238,100	179,932

For the year ended 30 September 2021

	Level 1	Level 2			Level 3
	Traded on AIM £'000	Listed on LSE  £'000	Traded on AIM  '000	Collective investment vehicles £'000	Unquoted £'000	Total £'000
Opening book cost	54,095	3,429	6,513	45,418	39,587	149,042
Opening unrealised appreciation/ (depreciation)	17,433	(3,387)	(3,960)	13,949	6,855	30,890
Opening fair value	71,528	42	2,553	59,367	46,442	179,932
Movements in the year:
Transfers between levels	6,513	-	(6,513)	-	-	-
Purchases at cost	4,146	-	-	32,439	12,908	49,493
Sale - proceeds	(10,946)	-	-	(29,453)	(9,997)	(50,396)
- realised gains/(losses) on sales	4,253	-	-	-	(1,163)	3,090
Unrealised gains realised during the year	5,003	-	-	-	4,387	9,390
Increase/(decrease) in unrealised appreciation	21,897	(8)	3,960	13,348	7,394	46,591
Closing fair value	102,394	34	-	75,701	59,971	238,100
Closing book cost	63,064	3,429	-	48,404	45,722	160,619
Closing unrealised appreciation/(depreciation)	39,330	(3,395)	-	27,297	14,249	77,481
Closing fair value	102,394	34	-	75,701	59,971	238,100
Equity shares	102,394	34	-	-	37,795	140,223
Preference shares	-	-	-	-	10,074	10,074
Loan notes	-	-	-	-	12,102	12,102
Collective investment vehicles	-	-	-	75,701	-	75,701
Closing fair value	102,394	34	-	75,701	59,971	238,100

For the year ended 30 September 2020

	Level 1	Level 2			Level 3
	Traded on AIM £'000	Listed   LSE   £'000	Traded on AIM £'000	Collective  investment  vehicles  £'000	Unquoted £'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: Transfer 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)
Sale - realised gains/(losses) on sales	1,434	-	-	-	(1,496)	(62)
Unrealised gains realised during the year	3,699	-	-	-	(355)	3,344
Increase/(decrease) in unrealised appreciation	15,744	(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	12,102
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.

The AIM-traded investments held in Level 2 as at 30 September 2020 have been transferred to Level 1 after recent trading activity in the period.

The Company received £20.9 million (2020: £17.4 million) from investments sold in the year, excluding liquidity funds redeemed of £29.5 million (2020: £13.6 million). The book cost of these investments when they were purchased was £8.5 million (2020: £14.2 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 2021			Year ended 30 September 2020
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
For the year ended 30 September 2021
Interim dividend of 3.0p per ordinary share paid on 10 September 2021	850	7,646	8,496	-	-	-
For the year ended 30 September 2020
Final dividend of 3.5p per ordinary share paid on 4 March 2021	1,232	8,354	9,586	-	-	-
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
	2,082	16,000	18,082	1,340	14,565	15,905

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 (2020: £nil) was received in the year ended 30 September 2021. 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 2021			Year ended 30 September 2020
	Quoted securities £'000	Unquoted securities £'000	Total £'000	Quoted securities £'000	Unquoted securities £'000	Total £'000
Income from investments
Dividend income	968	193	1,161	721	88	809
Interest income	1	2,659	2,660	62	3,137	3,199
Total income	969	2,852	3,821	783	3,225	4,008

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.

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 2021			Year ended 30 September 2020
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Investment management fee	1,424	4,272	5,696	1,078	3,235	4,313
Performance fee	-	-	-	-	-	-
	1,424	4,272	5,696	1,078	3,235	4,313

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, UK Micro Cap,Multi Cap and Small 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. £Nil performance fee is payable for the year ended 30 September 2021 (2020: £nil).

Other expenses

	Year ended 30 September 2021 £'000	Year ended 30 September 2020 £'000
Directors' fees	122	134
Secretarial and accounting fees paid to the Manager	143	175
Remuneration of the auditors and their associates:
- current auditors	48	-
- previous auditors	30	58
Other	322	307
	665	674

Information on Directors' remuneration is given in the Directors' emoluments table in the full Annual Report. During the year there was no remuneration due to the auditors for non-audit services (2020: £nil).

2.7  Debtors

	As at 30 September 2021 £'000	As at 30 September 2020 £'000
Prepayments and accrued income	109	571
	109	571

2.8  Creditors (amounts falling due within one year)

	As at 30 September 2021 £'000	As at 30 September 2020 £'000
Management, secretarial and accounting fees due	1,598	1,188
Amounts due to brokers	444	-
Other creditors	105	106
	2,147	1,294

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 before taxation is shown below:

	Year ended 30 September 2021			Year ended 30 September 2020
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Profit on ordinary activities before taxation	1,732	54,799	56,531	2,256	5,445	7,701
Corporation tax at 19.0 per cent (2020: 19.0 per cent)	329	10,412	10,741	429	1,035	1,464
Effect of:
Non-taxable gains	-	(11,223)	(11,223)	-	(1,649)	(1,649)
Non-taxable dividend income	(221)	-	(211)	(154)	-	(154)
Losses carried forward	-	703	703	-	339	339
Tax charge/(credit) for the year	108	(108)	-	275	(275)	-

At 30 September 2021 the Company had unrealised losses of £18,894,527 (2020: £15,321,306). A deferred tax asset of £3,589,960 (2020: £2,911,048) has not been recognised because the Company is not expected to generate taxable income in a future year in excess of the deductible expenses of that future year. 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:

For the year ended 30 September 2021
Ordinary shares	£'000
271,466,654 ordinary shares of 10p each listed at 30 September 2020	27,146
40,593,158 ordinary shares of 10p each issued during the year	4,060
312,059,812 ordinary shares of 10p each listed at 30 September 2021	31,206
24,215,084 ordinary shares of 10p each held in treasury at 30 September 2020	(2,421)
5,685,643 ordinary shares of 10p each repurchased during the year and held in treasury	(569)
815,000 ordinary shares of 10p each sold from treasury during the year	81
29,085,727 ordinary shares of 10p each held in treasury at 30 September 2021	(2,909)
282,974,085 ordinary shares of 10p each in circulation* at 30 September 2021	28,297

For the year ended 30 September 2020
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 40,593,158 ordinary shares were issued at an average price of 81.23p (202: 78.525p).

During the year the Company bought back into treasury 5,685,643 ordinary shares, representing 2.30 (2020:1.78) per cent  of the ordinary shares in circulation at the beginning of the financial year. During the year the Company also sold 815,000 (2020: 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.

For the year ended 30 September 2021

	Distributable reserves			Non-distributable reserves
	Capital reserve £'000	Revenue reserve £'000	Total £'000	Share premium £'000	Revaluation reserve* £'000	Total £'000
At 1 October 2020	75,290	2,216	77,506	46,775	30,890	77,665
Gross proceeds of share issues	-	-	-	28,915	-	28,915
Purchase of shares for treasury	(4,536)	-	(4,536)	-	-	-
Sale of shares from treasury	651	-	651	-	-	-
Expenses of share issues and buybacks	(23)	-	(23)	(1,459)	-	(1,459)
Reallocation of prior year unrealised gains/losses#	9,390	-	9,390	-	(9,390)	(9,390)
Realised gain on disposal of investments#	3,090	-	3,090	-	-	-
Net increase in value of investments#	-	-	-	-	55,981	55,981
Management fee charged to capital#	(4,272)	-	(4,272)	-	-	-
Taxation relief from capital expenses#	108	-	108	-	-	-
Profit after taxation#	-	1,624	1,624	-	-	-
Dividends paid in the year	(16,000)	(2,082)	(18,082)	-	-	-
At 30 September 2021	63,698	1,758	65,456	74,231	77,481	151,712

For the year ended 30 September 2020

	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 Other costs charged to capital	(16) (1)	- -	(16) (1)	(507) -	- -	(507) -
Reallocation of prior year unrealised gains#	3,344	-	3,344	-	(3,344)	(3,344)
Realised gain on 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#	-	1,624	1,624	-	-	-
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 £56,531,000, (2020: £7,701,000) which agrees to the total profit 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).

Price risk sensitivity

As at 30 September 2021, 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 the COVID-19 pandemic and associated government intervention. 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 sectors 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. A higher sensitivity of 30 per cent has been applied to the companies considered to have the highest level of estimation uncertainty, to reflect that their valuation, 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 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.

As at 30 September 2021

						Positive impact		Negative impact
Security	Valuation basis	Key variable inputs	Risk Level	Sensitivity %	Fair Value £'000s	£'000s	% of net assets	£'000	% of net assets
Unquoted	Earnings multiple	Estimated sustainable earnings
		Selection of comparable companies	High	+/-30	4,979	2,246	0.9	(2,344)	(0.9)
		Application of illiquidity discount	Medium	+/-20	28,106	6,571	2.6	(7,149)	(2.9)
		Probability estimation of Liquidation event	Low	+/-10	19,835	1,409	0.6	(1,370)	(0.6)
	Price of recent investment	L atest funding round price	Medium Low	+/-10 +/- 5	1,509 5,209	151 357	0.1 0.1	(151) (452)	(0.1) (0.2)
	O ther		Low	+/-5	334	17	0.0	(17)	0.0

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 £102.4 million, reflecting the level of volatility in financial markets in 2021 and 2020. A movement of +/- 20 per cent would cause an increase or decrease of £20.5 million to the fair value of the quoted AIM portfolio.

A sensitivity has also been performed for the Company's investments into the Micro Cap, Multi Cap and Small Cap funds, 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 £49.3 million, reflecting the level of volatility in financial markets in 2021. A movement of +/- 20 per cent would cause an increase or decrease of £9.9 million to the fair value of these investments.

As at 30 September 2020

						Positive impact		Negative impact
Security	Valuation basis	Key variable inputs	Risk Level	Sensitivity %	Fair Value £'000s	£'000s	% of net assets	£'000	% of net assets
Unquoted	Earnings multiple	Estimated sustainable earnings
		Selection of comparable companies	High	+/-30	9,158	2,334	1.3	(4,672)	(2.6)
		Application of illiquidity discount	Medium	+/-20	16,828	6,525	3.6	(4,4047	(2.2)
		Probability estimation of Liquidation event	Low	+/-10	5,367	632	0.3	(407)	(0.2)
	Price of recent investment	L atest funding round price	Medium Low	+/-10 +/- 5	8,046	4,481	2.5	(448)	(0.2)
	O ther		Low	+/-5	7,043	352	0.2	(352)	(0.2)

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 12 months, or a forecast of earnings where deemed appropriate. The valuation approach will typically assess companies based on the prior year actuals or last 12 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 up to 15 comparable companies will be selected for each investment to derive adopted revenue or earnings multiple.

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 and the Company's alignment with other institutional investors.

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 2021			As at 30 September 2020
	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	12,102	7.58	3.20	15,773	7.82	1.99
Floating rate sterling liquidity funds	26,390	-	-	30,084	-	-
Cash at bank and on deposit	12,312	-	-	3,108	-	-
	50,804			48,965

The fixed rate loans are not subject to interest rate risk and would therefore not impact the net assets. 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 wholly immaterial.

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 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 30 September 2021 £'000	As at 30 September 2020 £'000
Cash at bank and on deposit	12,312	3,108
Interest, dividends and other receivables	109	571
	12,421	3,679

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 majority of 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 Manager will seek to move the cash holdings to another bank.

There were no significant concentrations of credit risk to counterparties at 30 September 2021 or 2020. No individual investment in a portfolio company exceeded 6.7 per cent of the net assets attributable to the Company's shareholders at 30 September 2021 (2020: 4.9 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 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.

At the year end the company had financial liabilities of £2,147,000 (2020: £1,294,000). All financial liabilities were due within three months and were undiscounted (2020: same).

The Company maintains sufficient investments in cash and readily realisable securities to pay accounts payable and accrued expenses. At 30 September 2021, these investments were valued at £38,702,000 (2020: £33,191,000).

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	(3.0)	(12.7)	31 December 2020

3.5 Related parties

Related party transactions include Management, Secretarial, Accounting and Performance fees payable to the Manager, Gresham House Asset Management Ltd, 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 the full Annual Report. In addition, the Manager operates a VCT Incentive Scheme, detailed in the Management retention section of the Strategic Report above, 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 £254,000 advisory fees, £375,000 of directors' fees for services provided to companies in the investment portfolio and incurred abort costs of £8,000 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 from the VCT to the company stood at £3,510,000, including £1,122,000 of capitalised interest.

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 Manager. For further details on this please refer to the Full Investment Portfolio in the Appendices in the full Annual Report.

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 2021, the Company has commitments to invest up to £1.0 million, of which the full £1.0 million 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:

· One follow-on investment, into Airfinity, completed totalling £1.0 million.

· Partial realisations in Cerillion plc were made in November, realising proceeds of £0.8 million and making a return of 11.4x 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)‡ Graham McDonald Timothy Farazmand** Malcolm Groat*† Secretary Gresham House Asset Management Ltd Registered Office 5 New Street Square London EC4A 3TW Investment Manager Gresham House Asset Management Ltd 5 New Street Square London EC4A 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] Auditor BDO LLP 55 Baker Street London W1U 7EU 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

LEI: 2138008D3WUMF6TW8C28

END

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.

 

END

 

 

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