Final Results

Baronsmead VCT 3 PLC 10 February 2004 Baronsmead VCT 3 plc To: Company Announcements From: Baronsmead VCT 3 plc Date: 10 February 2004 Audited Results - Year Ended 31 December 2003 Highlights • Net asset value increased to 97.15 pence per share after the payment of dividend • Total return 12.7 per cent since launch • Portfolio grown to 32 companies • Initial capital dividend of 2 pence per share • Total dividend of 4.2 pence for the year RESULTS In the year to 31 December 2003, net asset value (NAV) per share increased by 6.9 per cent from 94.85p to 101.35p per share before providing for total dividends of 4.2p per share. This includes the proposed final revenue dividend of 1.3p per share and the first capital dividend of 2p per share, both payable on 26 March 2004. At 31 December 2003 after dividends paid, the NAV per share had increased to 97.15p. Since launch in January 2001, the total return of Baronsmead VCT 3 to 31 December 2003 is 12.7 per cent. This compares to the decrease in the FTSE All-Share index of 20.4% over this period. The differential of some 33.1% increases further if the benefits from the available VCT tax reliefs are taken into account. INVESTMENT RATE As the Board has indicated to shareholders previously, the level of new investment to reach the 70% of the funds to be invested in qualifying companies by 31 December 2003, has been a challenging target. The Directors and the Managers have been unwilling to sacrifice quality particularly in the uncertain times prior to May 2003. The successful sale of investments realising £4.3 million has also reduced the level of qualifying investments. However, the second half of 2003 has seen the rate of investment move forward sharply and this is continuing at the present time. At 31 December 2003, in order to ensure that the Company met the critical qualifying investment test, whereby 70 per cent of the Company's net proceeds raised must be invested in qualifying investments by the third accounting period, funds have been placed on a non-interest bearing account (which is not regarded as an investment for VCT purposes) pending investment of those funds into further VCT qualifying investments. The loss of interest as a result of this is relatively small. The Board is pleased to confirm all other appropriate VCT tests have been met as at 31 December 2003. PORTFOLIO PERFORMANCE By 31 December 2003, the investment portfolio totals 32 investments at a cost of £17 million. There were 14 additions to the portfolio during the year and the two largest investments, Thomas Sanderson and The AIMS Group, were successfully sold in May and June 2003 respectively. Since the year-end, an additional three investments have been completed and during 2004 we aim to increase the portfolio size to more than 40 companies. MEETING SHAREHOLDER NEEDS Shareholder's comment and feedback provide important guidance to the Board in formulating future policy and this year we gained insight into shareholder's priorities prior to the end of the first three years since subscription. Beyond this time, shareholders are able to permanently retain their income tax reclaim granted when they subscribed in the first half of 2001. Over 600 shareholders (29 per cent) responded to the questionnaire survey carried out during September 2003. Subsequently, some 250 shareholders were sent or attended the workshop presentations that were held in London, Birmingham, Manchester and Edinburgh. There was a strong long-term theme in this feedback, as almost 80 per cent of respondents do not intend selling their shares in the foreseeable future. 59 per cent ranked capital growth as their main investment objective. During the year, 255,253 new shares were issued at an average price of 97p per share via the dividend reinvestment scheme. The Company bought back 85,000 shares at an average share price of 87.5p representing a discount of 10 per cent to NAV per share. The valuation of the unquoted companies within the portfolio is based on the BVCA guidelines. These have recently been revised and the new guidelines apply from 1 August 2003. The principles behind the valuation decisions made by the Board have changed little but these judgements can require lengthy deliberations in fulfilling our obligations to value at 'fair value' suitably discounted for market illiquidity. AiM and other quoted investments are valued at mid-market prices less discounts where appropriate. CHANGES TO VENTURE CAPITAL TRUSTS In the Pre-Budget Speech of 10 December 2003, the Chancellor of the Exchequer announced his intention to change the tax benefits for VCT investors for subscription on or after 6 April 2004. In summary the proposed changes to the tax incentives for investors in VCTs are: • Abolition of CGT deferral as of 6 April 2004; • For the tax years 2004/05 and 2005/06 government to make a payment of 20 per cent of the amounts raised by VCTs directly to the VCT, initial VCT income tax relief to remain at 20 per cent of the amount subscribed; • Annual VCT limit to be raised to £200k per person. These proposed changes may be subject to revision and there is no certainty as to when the new tax benefits will come into force. Consequently, as soon as possible after these new tax benefits have been finalised, shareholders approval will be sought to enable the Company to continue to raise further funds in a manner which best accommodates the new tax benefits for investors. The Investment Manager continues to discuss these issues with the Inland Revenue to ensure the best tax position is attained for shareholders. OUTLOOK Improved world stability and steady stock markets are signalling better conditions for investment. The portfolio of Baronsmead VCT 3 is still at a relatively early stage of maturity and the Board has been heartened by the Company's absolute and comparative performance to date. The Board expects the Company to become fully invested during 2004 and judging by the level of operating profits and the trends within the portfolio, are confident that the investment objectives can continue to be satisfied. David Thorp, ISIS Equity Partners plc: 0207 506 1609 Rhonda Nicoll, ISIS Asset Management plc: 0131 465 1074 Audited Profit and Loss Account Year to 31 December 2003 Revenue Capital Total £'000 £'000 £'000 Profit on realisation of investments - 1,199 1,199 Income 1,472 - 1,472 Investment management fee (193) (581) (774) Other expenses (241) - (241) ---------- ----------- ----------- Profit on ordinary activities before taxation 1,038 618 1,656 Tax on ordinary activities (268) 185 (83) ---------- ----------- ----------- Profit on ordinary activities after taxation 770 803 1,573 Dividend paid/payable (747) (679) (1,426) ----------- ----------- ----------- Transfer to reserves 23 124 147 ---------- ---------- ----------- Return per ordinary share 2.27p 2.37p 4.64p ______ ______ _____ Statement of Total Recognised Gains and Losses for the year ended 31 December 2003 2003 2003 2003 Revenue Capital Total £'000 £'000 £'000 Profit on ordinary activities after taxation 770 803 1,573 Unrealised profit on revaluation of investments - 638 638 ---------- ----------- ----------- Total recognised gain during the year 770 1,441 2,211 ---------- ----------- ----------- Total recognised gain per ordinary share 2.27p 4.25 p 6.52p Audited Profit and Loss Account Year to 31 December 2002 Revenue Capital Total £'000 £'000 £'000 Profit on realisation of investments - 22 22 Income 1,825 - 1,825 Investment management fee (186) (559) (745) Other expenses (290) - (290) ---------- ----------- ----------- Profit/(loss) on ordinary activities before taxation 1,349 (537) 812 Tax on ordinary activities (396) 181 (215) ---------- ----------- ----------- Profit/(loss) on ordinary activities after taxation 953 (356) 597 Dividends paid/payable (941) - (941) ----------- ----------- ----------- Transfer to/(from) reserves 12 (356) (344) ---------- ---------- ----------- Return per ordinary share 2.85p (1.06)p 1.79p ______ ______ _____ Statement of Total Recognised Gains and Losses for the year ended 31 December 2002 2002 2002 2002 Revenue Capital Total £'000 £'000 £'000 Profit/(loss) on ordinary activities after taxation 953 (356) 597 Unrealised profit on revaluation of investments - 676 676 ---------- ----------- ----------- Total recognised gain during the year 953 320 1,273 ---------- ----------- ----------- Total recognised gain per ordinary share 2.85p 0.96p 3.81p Audited Balance Sheet As at As at 31 December 31 December 2003 2002 £'000 £'000 Fixed Assets Quoted on the Alternative Investment Market 7,645 3,539 Unquoted investments 10,586 8,125 Fixed interest securities 5,715 16,927 _______ _______ 23,946 28,591 Net current assets 9,048 3,459 ______ ______ Total assets less current liabilities 32,994 32,050 ______ ______ Financed by: Shareholders' funds 32,994 32,050 ______ ______ Net asset value per share: 97.15p 94.85p Ordinary shares in issue 33,962,410 33,792,157 Summarised Audited Statement of Cash Flows Year to Year to 31 December to 31 December 2003 2002 £'000 £'000 Net cash inflow from operating activities 504 1,228 Taxation paid (215) (167) Capital expenditure and financial investment 6,651 3,367 Equity dividends paid (778) (898) ----------- ----------- Net cash inflow before financing 6,162 3,530 Financing 159 649 ----------- ----------- Increase in cash 6,321 4,179 ----------- ----------- Reconciliation of net cash flow to movement in net cash Increase in cash 6,321 4,179 Opening net cash 4,587 408 ----------- ----------- Net cash at 31 December 2003 10,908 4,587 ----------- ----------- Reconciliation of operating profit before taxation to net cash inflow from operating activities Profit on ordinary activities before taxation 1,656 812 Profit on realisation of investments (1,199) (22) Decrease in debtors 66 427 (Decrease)/increase in creditors (19) 11 ----------- ----------- Net cash inflow from operating activities 504 1,228 ----------- ----------- Notes 1. The audited results which cover the year to 31 December 2003 have been prepared under the historical cost convention, modified to include the revaluation of fixed asset investments. These financial statements are presented in accordance with the Investment Trust Companies SORP (including the provision of additional information) except where departures are necessary to comply with schedule 4 of the Companies Act 1985 as a result of the fact that the Company will revoke its investment company status prior to payment of the capital dividend. 2. There were 33,962,410 Ordinary Shares in issue at 31 December 2003 (2002: 33,792,157). 255,253 Ordinary Shares were issued during the year. The Company bought back 85,000 Ordinary Shares for cancellation during the year. 3. Revenue and capital returns for the year to 31 December 2003 are based on a weighted average of 33,895,164 (2002: 33,446,891) Ordinary Shares in issue during the year. 4. Income for the year to 31 December is derived from: 2003 2002 £'000 £'000 Dividend Income 108 16 Fixed Interest Investment 1,136 1,728 Deposit Interest 228 80 Underwriting Commission - 1 1,472 1,825 5. The final proposed dividend of 3.3 pence per Ordinary Share will be paid on 26 March 2004 to shareholders on the register on 13 February 2004. 6. These are not full accounts in terms of Section 240 of the Companies Act 1985. Full audited accounts for the period to 31 December 2002 have been lodged with the Registrar of Companies. The annual report for the year to 31 December 2003 will be sent to shareholders shortly and will then be available for inspection at 100 Wood Street, London, the registered office of the Company. Both the audited accounts for the period to 31 December 2003 and the year to 31 December 2002 contain unqualified audit reports. 7. The Annual General Meeting will be held on 25 March 2004. This information is provided by RNS The company news service from the London Stock Exchange

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