Interim Results
Baronsmead VCT 3 PLC
19 August 2005
Baronsmead VCT 3 plc
To: Company Announcements
From: Baronsmead VCT 3 plc
Date: 19 August 2005
Interim Results for the period to 30 June 2005
Highlights
• NAV per share increased by 6.8 per cent to 112.40p from 105.26p before
deduction of interim dividends
• After interim dividends declared of 2.0p per share, the NAV per share was
110.40p
• Total return of 36 per cent since launch in January 2001
• Nine new investments were made during the period taking the total equity
portfolio to 56 companies
The Chairman, Mark Cannon Brookes, said
'Steady progress has been sustained with increased new investment and total
return.
Shareholders gave approval in March 2005 to a new fundraising. This is likely
to be launched in September 2005 by way of a C share offer and, if fully
subscribed, will move the total size of Baronsmead VCT 3 towards £60m.
RESULTS | In the six months to 30 June 2005, the NAV per share increased by 6.8
per cent from 105.26p to 112.40p before providing for the 2p interim dividend.
This dividend comprises 0.5p from net revenue and 1.5p from net realised capital
profits per share. The resulting NAV per ordinary share at the interim stage
was 110.40p per share. The increase in the FTSE All-Share Index (total return)
was 8.2 per cent over the comparable period.
The above results have been stated using UK Accounting Standards as applicable
at the previous year end so that the longer term trend in our performance can be
better understood by shareholders. Revised UK Accounting Standards are being
introduced for the current financial year. The introduction of these standards
will result in quoted and AiM investments being valued at bid (i.e. the price
which the market quotes for selling shares) rather than the mid-market share
price (i.e. the average of the bid price and the offer price which the market
quotes for buying shares). The other significant change relates to dividends,
which will not be recorded in the financial statements until these dividends are
paid. As a result of these changes, which have been adopted in preparing the
Interim Accounts, the net impact on the Company's net asset value at 30 June
2005 is an increase of 0.52p per share to 110.92p per share. Once these
standards are fully accepted by the Investment Trust and VCT industries, and
understood by shareholders, the Board anticipates that performance will also be
measured on this basis.
Since January 2001, the total investment return is 36 per cent, which is
comparable to a 3 per cent decline in the FTSE All-Share Index (total return)
over the same period. Tax free dividends paid now total 15.8p for founder
shareholders, which equates to 3.6 per cent annual yield or 4.5 per cent if the
initial 20 per cent income tax relief is taken into account. The equivalent
returns are that much higher for high rate tax payers.
THE PORTFOLIO | In the six month period under review, nine new investments were
made increasing the portfolio to 56 companies and taking the level of qualifying
investments to well over 80 per cent. The relative health of portfolio
companies is measured quarterly in terms of profitability or other measures of
progress appropriate to the investment in question. At 30 June 2005, over 80
per cent of the investees were reporting substantial or steady progress.
The increase in NAV per ordinary share has come largely from the unquoted
portfolio. Americana, AssA, Martin Audio and RLA Group have all made good
trading progress. The Managing Director of Occam Direct Marketing based near
Bath presented to the fourth Annual General Meeting giving a good picture of the
direct marketing industry and future prospects.
The table below shows the profit made from part sales in selected AiM
investments, which can then be used for tax-free distributions to shareholders.
Ardana floated in March 2005.
Realisations to First investment date Cost Proceeds Profits Multiple
return
30 June 2005 £'000 £'000 £'000
Begbies Traynor September 2004 86 192 106 2.23
Huveaux March 2003 18 39 21 2.17
MEM August 2002 68 139 71 2.04
Business Direct August 2004 65 114 49 1.75
Murgitroyd November 2001 181 256 75 1.41
Vectura April 2001 270 335 65 1.24
New investment was made into two unquoted companies, Credit Solutions and Boldon
James together with seven AiM-traded companies as set out in the table below.
Company Location Sector Activity £'000
Accuma Manchester Business Services Insolvency services 75
Boldon James Crewe IT services Messaging security 687
Credit Solutions Carshalton Business services Corporate financial services 1,032
Debtmatters Manchester Consumer Insolvency services 219
Eg Solutions Staffordshire IT services Financial services software 375
Fishworks Bath Consumer Fishmongers & restaurants 128
Hamsard Warrington IT services Security network solutions 375
Interquest London Business services Recruitment agencies 323
Talarius London Consumer Amusement machine centres 313
Total investment £3,527
MEETING SHAREHOLDER NEEDS | Shareholders approved a C share fundraising in March
2005 to issue up to 27 million shares and the extension of the life of the
Company from 2008 to 2013. The prospectus is likely to be issued in September
2005, whilst adopting changes in the listing rules resulting from the Prospectus
Directive issued on 1 July 2005.
During the period under review, 1.68m shares were issued in the March/April 2005
top up offers raising £1.81m net proceeds. 266,300 shares were issued under the
Dividend Reinvestment Scheme at 108.5p per share. Since the Company's year end
725,000 shares were bought back and cancelled by the Company at approximately a
10 per cent discount to NAV per share.
Following shareholder approval, the Company has bought back 645,000 ordinary
shares to be held in Treasury. The Board's policy on Treasury Shares is to
ensure that if these shares are issued, they will be priced at the NAV or above
on the day of issue. This will avoid dilution to existing shareholders. The
Company is only permitted to hold 10 per cent of its issued share capital in
Treasury and Treasury Shares can be cancelled by the Company at any time. The
Board can also confirm that Treasury Shares are not entitled to any dividends
paid by the Company and carry no voting rights.
The Board's stated dividend policy is to attempt to sustain annual dividends at
a level of 4.5p or more per ordinary share. It is recognised that the level can
vary depending mainly on the level of profitable realisations and also bearing
in mind our objective of maintaining or growing the capital subscribed by
shareholders.
These returns illustrate how Baronsmead VCT 3 can play an important part in
retirement planning for shareholders who appreciate these advantageous levels of
tax-free income. It is our intention to communicate this important feature to
stimulate the secondary market such that new purchasers are attracted to
acquiring existing ordinary shares.
CORPORATE GOVERNANCE
Recently, the Board conducted a review of auditing services provided to the
Company, given the changes that are to be implemented by the Company in the near
future, and concluded that it would be appropriate to move the audit services to
KPMG Audit Plc. We thank the resigning auditors, PKF, for their support and
advice since our inception.
The introduction of International Financial Reporting Standards (IFRS) had
important implications for financial institutions which have private equity
operations since IFRS requires investee companies to consolidate their financial
reporting in line with the ultimate shareholder. To address this issue, on 1
July 2005, a new Limited Liability Partnership (ISIS EP LLP) was created to
manage circa £500m of private equity assets and continue the operations of ISIS
Equity Partners, the managers of the Baronsmead VCTs, as before. The
relationship between F&C and ISIS Equity Partners remains strong as the status
of the latter moves from being a subsidiary to that of partnership. The Board
was fully consulted regarding this change of control and are supportive of the
new arrangement.
OUTLOOK | In our fifth year, the portfolio is at a higher level of investment
than before despite a good flow of realisations in the last two years. The
proposed issue of C shares will enable the portfolio to be built towards 80
investees providing a high level of diversity. Given stable economic
conditions, this could enable the current trend in growth of total returns to
continue. Our aim is to maintain the NAV per share above 100p and sustain the
dividend policy.'
David Thorp, ISIS EP LLP plc: 0207 506 1609
Rhonda Nicoll, F&C Asset Management plc: 0131 465 1074
Unaudited Income Statement
Six months to 30 June 2005
Revenue Capital Total
£'000 £'000 £'000
Increase in fair value designated investments held - 2,670 2,670
Decrease in fair value designated investments disposed of - (185) (185)
Income 433 - 433
Investment management fee (134) (400) (534)
Other expenses (135) - (135)
---------- ----------- -----------
Profit on ordinary activities before taxation 164 2,085 2,249
Tax on ordinary activities - - -
---------- ----------- -----------
Profit on ordinary activities after taxation 164 2,085 2,249
---------- ---------- -----------
Return per ordinary share 6.69p
_____
Amounts recognised as distributions to the equity holders in the period:
Final dividend for the year ended 31 December 2004 of 2.7p per share 298 596 894
298 596 894
Proposed distributions to equity holders at period end
Interim dividend for the period ended 30 June 2005 of 2.0p per share 170 509 679
170 509 679
Unaudited Income Statement
Six months to 30 June 2004
As restated As restated
Revenue Capital Total
£'000 £'000 £'000
Increase in fair value designated investments held - 1,796 1,796
Decrease in fair value designated investments disposed of - - -
Income 391 - 391
Investment management fee (120) (360) (480)
Other expenses (124) - (124)
---------- ----------- -----------
Profit on ordinary activities before taxation 147 1,436 1,583
Tax on ordinary activities (14) 14 -
---------- ----------- -----------
Profit on ordinary activities after taxation 133 1,450 1,583
---------- ---------- -----------
Return per ordinary share 4.65p
_____
Amounts recognised as distributions to the equity holders in the period:
Final dividend for the year ended 31 December 2003 of 3.3p per share 442 679 1,121
442 679 1,121
Proposed distributions to equity holders at period end
Interim dividend for the period ended 30 June 2004 of 1.8p per share 102 510 612
102 510 612
Audited Profit and Loss Account
Year to 31 December 2004
As restated As restated
Revenue Capital Total
£'000 £'000 £'000
Increase in fair value designated investments held - 4,029 4,029
Decrease in fair value designated investments disposed of - 200 200
Income 987 - 987
Investment management fee (248) (745) (993)
Other expenses (253) - (253)
---------- ----------- -----------
Profit on ordinary activities before taxation 486 3,484 3,970
Tax on ordinary activities (76) 76 -
---------- ----------- -----------
Profit on ordinary activities after taxation 410 3,560 3,970
---------- ---------- -----------
Return per ordinary share 11.70p
_____
Amounts recognised as distributions to the equity holders in the period:
Final dividend for the year ended 31 December 2003 of 3.3p per share 442 679 1,121
Interim dividend for the year ended 31 December 2004 of 1.8p per share 102 510 612
544 1,189 1,733
Proposed distributions to equity holders at period end
Interim dividend for the period ended 31 December 2004 of 2.7p per share 298 596 894
298 596 894
Unaudited Balance Sheet
As at As at As at
30 June 30 June 31 December
2005 2004 2004*
(as restated) (as restated)
£'000 £'000 £'000
Fixed Assets
Quoted on the Alternative Investment Market 13,442 8,858 12,598
Quoted FTSE SmallCap 619 - -
Unquoted investments 17,498 14,242 14,053
Listed Fixed interest securities 4,803 7,769 7,045
_______ _______ _______
36,362 30,869 33,696
Net current assets 1,282 3,476 1,792
______ ______ ______
Total assets less current liabilities 37,644 34,345 35,488
______ ______ ______
Financed by:
Shareholders' funds 37,644 34,345 35,488
______ ______ ______
Net asset value per share: 110.92p 100.92p 106.38p
Ordinary shares in issue 33,937,092 34,033,170 33,361,024
Treasury net asset value per share 110.92p
Number of ordinary shares in issue 33,937,092
Number of ordinary shares held in Treasury 645,000
Number of listed ordinary shares 34,582,092
*These figures are audited.
Summarised Unaudited Statement of Cash Flows
Six months to Six months Year
to to
30 June 30 June 31 December
2005 2004 2004*
(as restated) (as restated)
£'000 £'000 £'000
Net cash outflow from operating activities (152) (258) (308)
Taxation paid - - (83)
Capital expenditure and financial investment (192) (130) (6,353)
Equity dividends paid (894) (1,121) (1,733)
----------- ----------- -----------
Net cash outflow before financing (1,238) (1,509) (8,477)
Financing 790 132 (480)
----------- ----------- -----------
Decrease in cash (448) (1,377) (8,957)
----------- ----------- -----------
Reconciliation of net cash flow to movement in net
cash
Decrease in cash (448) (1,377) (8,957)
Opening net cash 1,951 10,908 10,908
----------- ----------- -----------
Net cash at end of period 1,503 9,531 1,951
----------- ----------- -----------
Reconciliation of operating profit before taxation to net cash flow from
operating activities
Profit on ordinary activities before taxation 2,249 1,583 3,970
Decrease/(increase) in fair value designated investments 185 - (200)
disposed of
Increase in fair value designated investments held (2,670) (1,796) (4,029)
Decrease/(increase) in debtors 80 (102) (137)
Increase in creditors 4 57 88
----------- ----------- -----------
Net cash outflow from operating activities (152) (258) (308)
----------- ----------- -----------
*These figures are audited.
Unaudited Statement of Changes in Equity
For the period ended 30 June 2005
Share Share Capital Redemption Revaluation Profit and loss
Reserve
Capital Premium Reserve Account
£'000 £'000 £'000 £'000 £'000
At 1 January 2005 3,335 1,786 175 5,019 25,173
Profit for the year - - - - 2,249
Net increase in value of - - - 2,670 (2,670)
investment
Transfer of prior years - - - (1,068) 1,068
revaluation to profit and
loss account
Deferred consideration - - - - 12
Purchase of shares for (72) - 72 - (712)
cancellation
Purchase of shares for (64) - 64 - (629)
Treasury
Equity Dividends - - - - (894)
Net Issue of shares 195 1,935 - - -
At 30 June 2005 3,394 3,721 311 6,621 23,597
Notes
1. The unaudited interim results which cover the six months to 30 June 2005
have been drawn up in accordance with the applicable accounting standards,
adopting the accounting policies set out in the statutory accounts
for the year ended 31 December 2004 apart from the following:
- under FRS 25/26, applicable for accounting periods commencing 1
January 2005, the unrealised increase in fair value designated
investments has been recognised through the income statement. In line
with the revised GAAP, quoted investments have been valued at bid,
rather than mid-market price;
- under FRS 21, applicable for accounting periods commencing 1 January
2005, dividends payable by the Company are now recognised in the
period in which they are paid.
2. There were 33,937,092 ordinary shares in issue at 30 June
2005 (31 December 2004: 33,361,024; 30 June 2004: 34,033,170). During the
period 1,946,068 ordinary shares were issued and 725,000 ordinary shares of 10p
each were bought in by the company for cancellation at a cost of £712,000.
Since the Company's AGM held on 23 March 2005, the Company has
bought back 645,000 shares to be held in Treasury at a cost of £629,000. These
shares will be reissued at Net Asset Value or above.
3. Earnings for the six months to 30 June 2005 should not be
taken as a guide to the results for the full year. The returns per ordinary
share are based on a weighted average of 33,594,934 (31 December 2004:
33,920,111; 30 June 2004: 34,031,429) ordinary shares in issue during the
period.
4. The interim dividend of 2.00p per ordinary share (comprising
0.5p revenue dividend and 1.5p capital dividend) will be paid on 28 September
2005 to shareholders on the register on 2 September 2005.
5. These are not statutory accounts in terms of Section 240 of the Companies
Act 1985 and are unaudited. The full audited accounts for the
period to 31 December 2004, which were unqualified, have been lodged with the
Registrar of Companies. No statutory accounts in respect of any period after 31
December 2004 have been reported on by the Company's auditors or delivered to
the Registrar of Companies.
6. Copies of the interim report have been mailed to shareholders and are
available from the Registered Office of the Company at Exchange House,
Primrose Street, London, EC2A 2NY.
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