Final Results
Baronsmead VCT 3 PLC
12 February 2007
To: RNS
From: Baronsmead VCT 3 plc
Date: 12 February 2007
Investment Objective
To achieve long-term capital growth and generate tax-free dividends for private
investors.
Audited Preliminary Results - Year Ended 31 December 2006
• Net asset value (NAV) per ordinary share increased by 17.1 per cent to
133.27p before deduction of dividends. After dividends totalling 6.5p the NAV
was 126.77p.
• NAV per C share increased by 7.2 per cent to 101.95p before deduction
of dividends. After dividends totalling 3p the NAV was 98.95p.
• Since launch in 2000, the total return to ordinary shareholders is 69.3 per
cent, equivalent to an annualised total return of 9.3 per cent before
income tax relief and 13.5 per cent afterwards.
The Chairman, Mark Cannon Brookes said:
'There has been strong valuation growth in both the unquoted and AiM parts of
the portfolio. The ordinary share portfolio is now 90 per cent invested by
value and good progress has been made investing the C share capital.
Dividends totalling 6.5p per ordinary share for the year, continues a
progressive record since launch in January 2001. Faster growth has been
experienced with the C share portfolio than might have been expected with 7.2
per cent growth in total return NAV, and dividends of 3p for the year.
RESULTS | In the year to 31 December 2006, the NAV per ordinary share increased
by 17.1 per cent from 113.81p to 133.27p before dividends. The proposed final
dividend of 4p per ordinary share will be paid to shareholders on 25 April 2007,
subject to shareholder approval. Since launch in 2001 the total return for the
ordinary shares is 69.3 per cent.
The NAV per C share increased by 7.2 per cent from 95.13p to 101.95p before
dividends. The proposed final dividend of 2p per C share will be paid to
shareholders on 25 April 2007, subject to shareholder approval.
The total returns for the ordinary and C shares are stated after all running
costs. Included in these costs are additional fees payable to the Manager when
the total return in any year exceeds the annual performance trigger. £1.04
million is attributable to the ordinary shares and £0.37 million to the C
shares, both representing 20 per cent of the return in excess of their
respective hurdle rates.
LONG TERM PERFORMANCE | The total return of 69.3 per cent since inception in
2001 represents an annual total return growth rate of 9.3 per cent. This is
stated before the inclusion of VCT tax reliefs. These reliefs were designed to
redress both the VCT constraints as well as the higher risk that pertains to
investment in smaller unquoted and AiM-traded companies. If the original 20 per
cent subscription relief is taken into account the return becomes 112 per cent
and the annual compound growth rate increases to 13.5 per cent
The total return compares favourably with that of the FTSE All-Share Index of
27.9 per cent as well as the five other Generalist VCTs launched in 2000/2001.
The total return at 31 December 2006 is some 34 per cent in excess of the
average of this peer group (Source: FT and Company Announcements).
The investment performance can also be compared with those investment trusts
that focus on private equity. In the last five years that the Company has been
more fully invested, the total return can be compared to the 19 investment
trusts that focus on Private Equity (source: Trustnet). This return places the
Company behind three of these investments trusts, with the subscription relief
included, and ninth on a pure investment basis. These investment trusts are not
restricted by VCT legislation that limits the range of investments available to
Baronsmead VCT 3.
Dividends totalling 25.8p have now been paid to founder ordinary shareholders,
with 53 per cent coming from net realised profits on the sale of investments.
On a share price of 116.5p at the year end, the dividend yield equates to 5.6
per cent tax-free to qualifying investors, which compares to the FTSE All-Share
yield of 2.9 per cent. The returns over 1, 3 and 5 years are detailed below:
Ordinary Shares (%growth) One year Three years Five years
NAV total return 17 50 67
Share price total return 22 47 62
FTSE All-Share total return 17 61 50
THE PORTFOLIO | The ordinary share portfolio remained substantially invested
during the year moving from 83 per cent to over 90 per cent by value. There was
significant increase in investment growth in the C share portfolio, which grew
from 5 per cent to 35 per cent invested by value at 31 December 2006.
13 new investments were made and 5 investments realised taking the net portfolio
to 68 companies. New investments totalled £6.9 million into 4 new unquoted and
9 AiM-traded investees. The allocation policy between ordinary and C shares is
approved quarterly by the Board giving due consideration to the constraints of
the VCT legislation.
The six VCT tests relating to the running of Baronsmead VCT 3 were met for each
day of the year to 31 December 2006. 70 per cent of the ordinary share
portfolio has to be invested in qualifying investments by the end of the third
accounting period after the subscription of new capital. At the year end,
approximately 89 per cent of the ordinary capital raised (net of launch costs)
prior to 31 December 2004 was invested in VCT qualifying investments.
The 'direction of travel' or relative health of portfolio companies is measured
quarterly in terms of profitability as well as other non-financial benchmarks.
At the year end, 87 per cent of the portfolio companies were reporting higher or
steady profits, which is at one of the highest percentages since early 2005.
Meanwhile, the portfolio has grown from 57 to 68 investees over this time.
The sale of investments totalled £4 million realising a net profit of some £1.8
million. The sale of our investment in Domantis, in early January 2007, was
unexpected but is an excellent illustration of what is possible from a portfolio
of technology focused companies. The sale was at 3.7 times the 2004/2005 cost
and generated a profit of £1.6 million, approximately 5p per ordinary share.
DEVELOPMENT OF THE SECONDARY MARKET | A shareholder survey was completed, during
the year, by over 25 per cent of both ordinary and C shareholders, some 970
shareholders in total. The responses confirmed the previous survey results from
autumn 2003, in that over 70 per cent had no intention of selling in the longer
term and overall 62 per cent indicated a preference toward capital growth rather
than maximising income from dividend payments.
The other survey questions focused on the secondary market and 18 per cent of
shareholders indicated they could wish to buy additional shares in the Company.
Another 30 per cent indicated this might become a possibility. Tax reliefs on
purchases of up to £200,000 per year and continuing growth in total return were
indicated as the main priorities for purchasers. Buying existing shares has
investment attractions for ordinary shareholders who wish to build their capital
in a mature portfolio as well as receiving substantial cash dividends.
The new dividend investment plan (DRIP) has been taken up by 417 shareholders
and 145,885 shares were purchased by the Company's registrars, Computershare, in
October 2006 to satisfy the DRIP. No shares have been bought back by the
Company since September 2006 and there are signs that the secondary market is
starting to work.
The ability of the Board to re-issue shares out of Treasury is being deferred
until HM Revenue & Customs have confirmed that these shares can be issued under
the pre 6 April 2006 VCT legislation. This view may not be forthcoming in which
case the Board will have to reconsider its policy towards the use of Treasury
shares as a means to improve shareholder liquidity, which was the original
intent behind the introduction of Treasury Shares in December 2003.
INVESTMENT MANAGEMENT | In December 2006, the Board announced that it had agreed
with the Manager that the co-investment scheme, originally introduced in
November 2004, be extended so that the investment executives will now invest 12
per cent in all the unquoted investments made by the generalist Baronsmead VCTs.
However, to ensure that shareholders are not disadvantaged in any way, the
Board has agreed, with the Manager, a reduction over the two years from 1 April
2007, to the performance fee paid to the Manager from its current level of 20
per cent to 10 per cent of the excess over the hurdle rate. The Board carefully
examined the combined effect of these amendments and believes that these changes
are likely to lead to improved performance levels. If performance were to
deteriorate, the changes would be likely to have only a neutral effect on
shareholder returns.
The Company now has approximately 3,300 ordinary and C shareholders and the task
as a Board is to ensure that we meet and understand shareholder's requirements.
OUTLOOK | It is our intention to sustain the progress achieved in the last six
years. Investors during this time period have benefited from both the
investment performance and VCT tax benefits. However we are restricted to
investing in the UK where levels of debt are at all time record levels with
interest rates rising as a consequence. We are hopeful that the measures taken
so far to contain inflation will be successful and if so we are confident the
Company will be able to maintain the progress achieved to date.'
Enquiries: David Thorp 0207 506 1100 ISIS EP LLP
Rhonda Nicoll 0131 718 1000 F&C Asset Management plc
Baronsmead VCT 3 plc
Audited Income Statement
Year to 31 December 2006
Ordinary Shares
Revenue Capital Total
£'000 £'000 £'000
Unrealised gains on investments - 6,884 6,884
Realised gains on investments - 779 779
Income 1,170 - 1,170
Investment management fee (309) (2,077) (2,386)
Other expenses (230) - (230)
Profit on ordinary activities before taxation 631 5,586 6,217
Tax on ordinary activities (65) 65 -
Profit on ordinary activities after taxation 566 5,651 6,217
Return per ordinary share: 1.73p 17.24p 18.97p
Audited Reconciliation of Movements in Shareholders' Funds
Ordinary Shares 2006
£'000
Opening shareholders' funds 39,226
Profit for the year 6,217
Increase in share capital in issue 365
Purchase of shares for Treasury (1,504)
Dividends paid (1,983)
Closing shareholders' funds 42,321
Baronsmead VCT 3 plc
Audited Income Statement
Year to 31 December 2006
C Shares
Revenue Capital Total
£'000 £'000 £'000
Unrealised gains on investments - 1,509 1,509
Realised gains on investments - 241 241
Income 950 - 950
Investment management fee (139) (775) (914)
Other expenses (139) - (139)
Profit on ordinary activities before taxation 672 975 1,647
Tax on ordinary activities (199) 199 -
Profit on ordinary activities after taxation 473 1,174 1,647
Return per C share: 1.97p 4.90p 6.87p
Audited Reconciliation of Movements in Shareholders' Funds
C Shares 2006
£'000
Opening shareholders' funds 17,022
Profit for the year 1,647
Increase in share capital in issue 5,804
Cost of share premium conversion (6)
Dividends paid (240)
Closing shareholders' funds 24,227
Baronsmead VCT 3 plc
Audited Income Statement
Year to 31 December 2006
Total
Revenue Capital Total
£'000 £'000 £'000
Unrealised gains on investments - 8,393 8,393
Realised gains on investments - 1,020 1,020
Income 2,120 - 2,120
Investment management fee (448) (2,852) (3,300)
Other expenses (369) - (369)
Profit on ordinary activities before taxation 1,303 6,561 7,864
Tax on ordinary activities (264) 264 -
Profit on ordinary activities after taxation 1,039 6,825 7,864
Return per ordinary share/C share: 1.83p 12.03p 13.86p
Audited Reconciliation of Movements in Shareholders' Funds
Total 2006
£'000
Opening shareholders' funds 56,248
Profit for the year 7,864
Increase in share capital in issue 6,169
Cost of share premium conversion (6)
Purchase of shares from Treasury (1,504)
Dividends paid (2,223)
Closing shareholders' funds 66,548
Baronsmead VCT 3 plc
Audited Income Statement
Year to 31 December 2005
Ordinary Shares
Revenue Capital Total
£'000 £'000 £'000
Unrealised gains on investments - 3,793 3,793
Realised gains on investments - 1,295 1,295
Income 1,461 - 1,461
Investment management fee (278) (1,026) (1,304)
Other expenses (251) - (251)
Profit on ordinary activities before taxation 932 4,062 4,994
Tax on ordinary activities (226) 226 -
Profit on ordinary activities after taxation 706 4,288 4,994
Return per ordinary share: 2.09p 12.73p 14.82p
Audited Reconciliation of Movements in Shareholders' Funds
Ordinary Shares 2005
£'000
Opening shareholders' funds 35,488
Profit for the year 4,994
Deferred consideration 13
Increase share capital in issue 303
Dividends paid (1,572)
Closing shareholders' funds 39,226
Baronsmead VCT 3 plc
Audited Income Statement
Year to 31 December 2005
C Shares
Revenue Capital Total
£'000 £'000 £'000
Unrealised gains on investments - 2 2
Income 92 - 92
Investment management fee (14) (42) (56)
Other expenses (27) - (27)
Profit/(loss) on ordinary activities before taxation 51 (40) 11
Tax on ordinary activities (10) 10 -
Profit/(loss) on ordinary activities after taxation 41 (30) 11
Return per C share: 0.37p (0.27p) 0.10p
Audited Reconciliation of Movements in Shareholders' Funds
C Shares 2005
£'000
Profit for the year 11
Increase in share capital in issue 17,011
Closing shareholders' funds 17,022
Baronsmead VCT 3 plc
Audited Income Statement
Year to 31 December 2005
Total
Revenue Capital Total
£'000 £'000 £'000
Unrealised gains on investments - 3,795 3,795
Realised gains on investments - 1,295 1,295
Income 1,553 - 1,553
Investment management fee (292) (1,068) (1,360)
Other expenses (278) - (278)
Profit on ordinary activities before taxation 983 4,022 5,005
Tax on ordinary activities (236) 236 -
Profit on ordinary activities after taxation 747 4,258 5,005
Return per ordinary share/C share: 2.06p 11.75p 13.81p
Audited Reconciliation of Movements in Shareholders' Funds
Total 2005
£'000
Opening shareholders' funds 35,488
Profit for the year 5,005
Deferred consideration 13
Increase in share capital in issue 17,314
Dividends paid (1,572)
Closing shareholders' funds 56,248
Baronsmead VCT 3 plc
Audited Balance Sheet
As at 31 December 2006
2006 2006 2006
Ordinary C
Shares Shares Total
£'000 £'000 £'000
Fixed assets
Traded on AiM 15,080 3,352 18,432
Quoted on FTSE SmallCap 600 - 600
Interest bearing securities 3,989 14,882 18,871
Unquoted investments 22,718 5,115 27,833
42,387 23,349 65,736
Net current (liabilities)/assets (66) 878 812
Net assets 42,321 24,227 66,548
Financed by:
Shareholders' funds 42,321 24,227 66,548
Net asset value per share:
Basic 130.77p 100.95p -
Treasury 129.66p - -
Ordinary shares in issue 32,362,392 23,999,772 -
Listed ordinary shares 35,092,392 23,999,772 -
Treasury shares 2,730,000 -
Baronsmead VCT 3 plc
Audited Balance Sheet
As at 31 December 2005
2005 2005 2005
Ordinary C
Shares Shares Total
£'000 £'000 £'000
Fixed assets
Traded on AiM 13,983 422 14,405
Quoted on FTSE SmallCap 610 - 610
Interest bearing securities 4,799 9,033 13,832
Unquoted investments 18,153 399 18,552
37,545 9,854 47,399
Net current assets 1,681 7,168 8,849
Net assets 39,226 17,022 56,248
Financed by:
Shareholders' funds 39,226 17,022 56,248
Net asset value per share:
Basic 117.31p 95.13p -
Treasury 117.31p - -
Ordinary shares in issue 33,438,684 17,894,064 -
Listed ordinary shares 34,778,684 17,894,064 -
Treasury shares 1,340,000 - -
Baronsmead VCT 3 plc
Summarised Audited Statement of Cash Flows
For the year ended 31 December 2006
2006 2006 2006
Ordinary C
Shares Shares Total
£'000 £'000 £'000
Net cash (outflow)/inflow from operating activities (466) 150 (316)
Capital expenditure and financial investment 2,906 (11,848) (8,942)
Equity dividends paid (1,983) (240) (2,223)
Net cash inflow/(outflow) before financing 457 (11,938) (11,481)
Financing (1,139) 7,204 6,065
Decrease in cash (682) (4,734) (5,416)
Reconciliation of net cash flow to movement in net
cash
Decrease in cash (682) (4,734) (5,416)
Opening cash position 1,933 5,815 7,748
Closing cash position 1,251 1,081 2,332
Reconciliation of net revenue before taxation to net
cash (outflow)/ inflow from operating activities
2006 2006 2006
Ordinary C
Shares Shares Total
£'000 £'000 £'000
Profit on ordinary activities before taxation 6,217 1,647 7,864
Profit on realisation of investments (779) (241) (1,020)
Unrealised gains on investments (6,884) (1,509) (8,393)
Decrease/(increase) in debtors 97 (208) (111)
Increase in creditors 883 461 1,344
Net cash (outflow)/inflow from operating activities (466) 150 (316)
Baronsmead VCT 3 plc
Summarised Audited Statement of Cash Flows
For the year ended 31 December 2005
2005 2005 2005
Ordinary C
Shares Shares Total
£'000 £'000 £'000
Net cash outflow from operating activities (33) (40) (73)
Capital expenditure and financial investment 1,284 (9,750) (8,466)
Equity dividends paid (1,572) - (1,572)
Net cash outflow before financing (321) (9,790) (10,111)
Financing 303 15,605 15,908
(Decrease)/increase in cash (18) 5,815 5,797
Reconciliation of net cash flow to movement in net
cash
(Decrease)/increase in cash (18) 5,815 5,797
Opening cash position 1,951 - 1,951
Closing cash position 1,933 5,815 7,748
Reconciliation of net revenue before taxation to net
cash outflow from operating activities
2005 2005 2005
Ordinary C
Shares Shares Total
£'000 £'000 £'000
Profit on ordinary activities before taxation 4,994 11 5,005
Profit on realisation of investments (1,295) - (1,295)
Unrealised gains on investments (3,793) (2) (3,795)
Increase in debtors (154) (130) (284)
Increase in creditors 215 81 296
Net cash outflow from operating activities (33) (40) (73)
Notes
1. The audited results which cover the year to 31 December 2006 have been
prepared under UK Generally Accepted Accounting Practice (UK GAAP).
Where presentational guidance set out in the Statement of Recommended Practice
('SORP'), revised December 2005, for investment trusts issued by the Association
of Investment Companies ('AIC') in January 2003 is consistent with the
requirements of UK GAAP, the Directors have sought to prepare the financial
statements on a basis compliant with the recommendations of the SORP.
In order to better reflect the activities of a VCT and in accordance with the
SORP, supplementary information which analyses the income statement between
items of a revenue and capital nature has been presented alongside the income
statement. The Net Revenue is the measure the Directors believe appropriate in
assessing the Company's compliance with certain requirements set out in Section
842 AA Income and Corporation Taxes Act 1988.
2. There were 32,362,392 ordinary shares in issue at 31 December 2006 (31
December 2005: 33,438,684). During the year the Company issued 313,708 ordinary
shares raising net proceeds of £365,000 and bought back 1,390,000 ordinary
shares at a cost of £1,504,000 to be held in Treasury. The total number of
ordinary shares listed at 31 December 2005 was 35,092,392 (31 December 2005:
34,778,684).
There were 23,999,772 C shares in issue at 31 December 2006 (31
December 2005: 17,894,064). During the year the Company issued 6,105,708 C
shares raising net proceeds of £5,804,000.
3. Revenue and capital returns for the ordinary shares for the year to 31
December 2006 are based on a weighted average of 32,776,271 (2005: 33,702,319)
ordinary shares in issue during the year.
Revenue and capital returns for the C shares for the period from
launch to 31 December 2006 are based on a weighted average of 23,966,316 (2005:
11,117,964) C shares in issue during the year.
4. Income for the year is derived from:
2006 2005
Total Total
£'000 £'000
Dividend Income 417 132
Fixed interest investment 1,466 1,292
Deposit interest 237 129
2,120 1,553
5. The final proposed dividend of 4.0 pence per ordinary share will
be paid on 25 April 2007, subject to shareholder approval, to eligible
shareholders on the register on 23 February 2007. The final proposed dividend of
2.0 pence per C share will be paid on 25 April 2007, subject to shareholder
approval, to eligible shareholders on the register on 23 February 2007.
6. These are not full accounts in terms of Section 240 of the Companies
Act 1985. Full audited accounts for the year to 31 December 2005 have been
lodged with the Registrar of Companies. The annual report for the year to 31
December 2006 will be sent to shareholders shortly and will then be available
for inspection at the offices of ISIS EP LLP, 100 Wood Street, London, the
registered office of the Company. Both the audited accounts for the year to 31
December 2006 and the year to 31 December 2005 contain unqualified audit
reports.
7. The Annual General Meeting will be held on 17 April 2007 at 11am.
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