Final Results
Baronsmead VCT 3 PLC
08 February 2006
To: RNS
From: Baronsmead VCT 3 plc
Date: 8 February 2006
Investment Objective
To achieve long-term capital growth and generate tax free dividends for private
investors.
Audited Preliminary Results - Year Ended 31 December 2005
• Net asset value (NAV) increased by 15.1 per cent to 119.31p per
ordinary share before deduction of annual dividends.
• After ordinary dividends totalling 5.5p per share, for the year, the
NAV is 113.81p at 31 December 2005.
• An ordinary interim dividend of 2p per share was paid on 28 September
2005 and a final ordinary dividend of 3.5p per share will be paid on 20 March
2006, subject to shareholder approval.
• Since launch in 2001, the total return to ordinary shareholders is
46.4 per cent (based on quoted investments valued at mid-market price).
• The C share fundraising closed on 3 January 2006, fully subscribed and
raising over £22m net proceeds
The Chairman, Mark Cannon Brookes said:
'RESULTS | In the year to 31 December 2005, the Net Asset Value (NAV) per
ordinary share increased by 15.1 per cent from 103.68p to 119.31p before
dividends. The 2p interim dividend was paid in September 2005 and the proposed
final dividend of 3.5p is payable on 20 March 2006. After dividend payments,
which are tax-free for qualifying shareholders, the NAV per ordinary share at
the year end is 113.81p.
This level of dividends is possible through the successful realisation of
profits from across the portfolio. AssA was sold outright to a third party and
the refinancing of Americana also generated a sizeable gain over original cost.
From our launch in 2001, the Managers have had the incentive to grow the value
of the portfolio such that any performance fee only becomes payable once the
total return exceeds 140 per cent and thereafter rises at 8 per cent simple per
annum. The results for the year to 31 December 2005 trigger a performance fee
of £157,000 (excluding VAT) which is based on the Managers receiving 20 per cent
of the total return in excess of this trigger level.
The C share offer raised net proceeds of £22.6 million and from this pool of
capital the first two investments were made in Green Issues and Autoclenz
Holdings. The first C share dividend will be paid in September 2006 out of any
surplus from net revenue. The NAV per C share was 95.1p at 31 December 2005.
LONG TERM PERFORMANCE | Since launch the total return (based on quoted
investments being valued at mid-market price) for founder shareholders is 46 per
cent net of all costs. This level of return is calculated by combining the
growth in NAV with reinvested dividends per ordinary share of 19.3p.
When compared to the five Generalist VCTs launched at the same time, the Company
has a total return in excess of the average and is also 37 per cent ahead of the
FTSE All-Share Index which is a broad UK comparator for equity investments
This record also shows how over the last five years the share price has moved.
On average we seek to maintain a 10 per cent discount to NAV. However, at
certain times of the year, prior to publication of financial results and payment
of dividends this discount may fluctuate. The bid price for the second half of
the year exceeded 100p and many of the 2.1 million sold by ordinary shareholders
were at close to this level.
THE PORTFOLIO | In the year under review, 16 new investments were made and two
investments sold taking the net portfolio to 61 companies. There were six new
unquoted and ten AiM investments totalling £8.5 million. The average size of
each unquoted investments was significantly larger at £880,000 than the AiM
investments of £270,000.
Six VCT tests relating to the running of Baronsmead VCT 3 have to be, and were,
met for each day of the year to 31 December 2005. The most visible of these
tests is that more than 70% of the portfolio has been invested in qualifying
investments beyond the first three accounting periods from when new share
capital was subscribed. At the year end, over 87 per cent of the capital raised
(net of launch costs) prior to 31 December 2003 was invested in VCT qualifying
investments.
The relative health of portfolio companies is measured quarterly in terms of
profitability as well as other non-financial benchmarks. At the year end, 80
per cent of the portfolio companies were reporting higher or steady profits. In
the last quarter there had been some softening in the trading of investee
companies.
The sale of the investment in AssA was reported in the autumn fact sheet and
generated a return of 2.5x cost over the two-year period that the investment was
held prior to the sale to Carter & Carter. Since the year end, Language Line
has also been sold at 2.1x cost to a similar US company and generated a profit
of £600,000. However, the largest gain came from the refinancing of Americana,
which returned a profit of £2.9 million in November 2005.
The change in NAV of the C shares, in the first year, is only likely to be from
the change in bid share price of new AiM shareholdings as the residual portfolio
will be a high proportion in cash and fixed interest securities. Unquoted
investment are rarely revalued from their cost during this first period under
BVCA guidelines.
CHANGE IN FUND MANAGER OWNERSHIP | On 1 July 2005, a recently formed Limited
Liability Partnership (ISIS EP LLP) assumed the existing business and operations
of ISIS Equity Partners plc, managing over £500 million of private equity
assets, including the management contract of the Company. The relationship
between F&C Asset Management plc and ISIS EP LLP remains strong as the status
moves from being a subsidiary to that of a partnership. The Board was consulted
regarding this change and was fully supportive. The Board retains its
confidence in the management team which remains in place and now enjoys the
added motivation provided by the change of ownership.
The Investment Managers role as active investors with unquoted portfolios was
recognised by an award in 2005 (EVCA/Real Deals) for the best growth capital
transaction in Europe made by ISIS Equity Partners relating to a 2000 investment
in Fat Face. This investment held between 2000 to 2005 predated the Company but
did involve the first two Baronsmead VCTs.
MEETING SHAREHOLDER NEEDS
C Share Fundraising | Shareholders approved the C share fundraising at the
fourth AGM in March 2004 and the extension of the life of the Company from 2008
to 2013. The prospectus issued in September was well received by commentators,
advisers and their clients so that the offer for 2005/06 was fully subscribed
one month ahead of schedule. Over 35 per cent of existing shareholders across
the 4 Baronsmead VCTs subscribed to the fundraising.
Tax Reliefs | The current rate of income tax relief is 40 per cent and is
available until 5 April 2006. The Government remains committed to ensuring the
long term sustainability and success of the VCT market and will announce the
future level of VCT reliefs at Budget 2006. The intervening period will allow
further analysis of trends in the VCT market and continued dialogue with key
stakeholders.
Existing shareholders subscribed for 507,822 new shares at an average price of
110p per ordinary share under the Dividend Reinvestment Scheme. A further 1.7
million shares were issued, under the Offer for Subscription - 'Top Up', during
March/April 2005 at an average price of 113p. This latter Scheme is in abeyance
as it is currently not cost effective following the introduction of the EU
Prospectus Directive on 1 July 2005
Dividend Policy | The Board has agreed that it wishes to sustain an annual
dividend policy of 4.5p per ordinary share. This takes into account that the
Board's aim is to maintain an NAV at 100p or more per ordinary share. The
ability to meet these twin objectives will depend significantly on the level and
timing of profitable realisations and the underlying value of the portfolio. The
Board therefore wishes to build a buffer of reserves, which will enable this
policy to be continued once the current C shares are converted into ordinary
shares in 2008.
The total dividends paid and proposed for 2005 are 5.5p per ordinary share and
are in excess of the stated policy. To date the average paid to founder
shareholders has been 3.9p per year. For those qualifying shareholders who
obtained the income tax relief of 20 per cent on subscription, the net annual
yield is 4.9 per cent. For a higher rate tax payer the equivalent yield rises
to 7.3 per cent.
CO-INVESTMENT SCHEME | The co-investment scheme for executive members of the
Managers to invest in unquoted transactions was announced to shareholders in
November 2004 and was explained in more detail in the fact sheet issued after
the 30 September 2005 quarter end. The rationale remains to expand the existing
skills and capacity of the Manager's team. In its first year of this scheme
coming into force, 21 members of ISIS EP LLP have invested £74,950 in all the
six unquoted investments where the Manager was the lead investor.
OUTLOOK | At the end of our first five years, a firm base has been established
for future growth with over £60 million of net assets and a portfolio of 61
companies. The priority in the coming years is to sustain this progress and the
investment performance.
We now have over 3,500 ordinary and C shareholders and our task as a Board is to
ensure that we meet and better your expectations in the longer term. I look
forward to welcoming as many shareholders as possible at the AGM on 16 March
2006 at 11.00 a.m. at the offices of ISIS EP LLP, Exchange House, Primrose
Street, London EC2A 2NY. There will be a number of presentations followed by a
light buffet lunch and shareholder workshop finishing by 2.30 pm.'
Enquiries: David Thorp 0207 506 1100 ISIS EP LLP
Rhonda Nicoll 0131 465 1000 F&C Asset Management plc
Baronsmead VCT 3 plc
Audited Income Statement
Year to 31 December 2005
Ordinary Shares
Revenue Capital Total
£'000 £'000 £'000
Increase in fair value of investments held - 3,793 3,793
Gain on disposal of 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
Dividends paid/proposed
Revenue Capital Total
£'000 £'000 £'000
Interim dividend for the period ended 31 December 2005 of 2.0p per
ordinary share 169 509 678
Final dividend for the period ended 31 December 2005 of 3.5p per
ordinary share 501 669 1,170
670 1,178 1,848
Audited Reconciliation of Movements in Shareholders' Funds
Ordinary Shares 2005
£'000
Opening shareholders' funds (as previously reported) 35,116
Less investments held at fair value changed from mid to bid basis (528)
Add dividends accrued at 31 December 2004 900
Opening shareholders' funds (as restated) 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
Increase in fair value of investments held - 2 2
Gain on disposal of investments - - -
Income 92 - 92
Investment management fee (14) (42) (56)
Other expenses (27) - (27)
Profit on ordinary activities before taxation 51 (40) 11
Tax on ordinary activities (10) 10 -
Profit on ordinary activities after taxation 41 (30) 11
Return per C share: 0.37p (0.27p) 0.10p
* The C Shares were launched on 10 October 2005
There were no dividends paid or proposed for the C Shares for the period since
launch
Audited Reconciliation of Movements in Shareholders' Funds
C Shares 2005
£'000
Opening shareholders' funds -
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
Increase in fair value of investments held - 3,795 3,795
Gain on disposal of 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
Dividends paid/proposed
Revenue Capital Total
£'000 £'000 £'000
Interim dividend for the period ended 31 December 2005 of 2.0p per
ordinary share 169 509 678
Final dividend for the period ended 31 December 2005 of 3.5p per
ordinary share 501 669 1,170
670 1,178 1,848
Audited Reconciliation of Movements in Shareholders' Funds
Total 2005
£'000
Opening shareholders' funds (as previously reported) 35,116
Less investments held at fair value changed from mid to bid basis (528)
Add dividends accrued at 31 December 2004 900
Opening shareholders' funds (as restated) 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 Income Statement
Year to 31 December 2004
Revenue Capital Total
(as restated) (as restated) (as restated)
£'000 £'000 £'000
Increase in fair value of investments held - 4,029 4,029
Gain on disposal of investments - 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: 1.21p 10.49p 11.70p
Dividends paid/proposed
Revenue Capital Total
£'000 £'000 £'000
Interim dividend for the year ended 31 December 2004 of
1.8p per share 102 510 612
Final dividend for the year ended 31 December 2004 of
2.7p per share 298 596 894
400 1,106 1,506
Audited Reconciliation of Movements in Shareholders' Funds
Total
£'000
Opening shareholders' funds (as previously reported) 32,994
Less investments held at fair value changed from mid to bid basis (384)
Add dividends accrued at 31 December 2003 1,121
Opening shareholders' funds (as restated) 33,731
Profit for the year 3,970
Decrease in share capital in issue (480)
Dividends paid (1,733)
Closing shareholders' funds 35,488
Baronsmead VCT 3 plc
Audited Balance Sheet
As at 31 December 2005
2005 2005 2005 2004
Ordinary C (as restated)
Shares Shares Total Total
£'000 £'000 £'000 £'000
Fixed assets held at fair value
Quoted on AiM 13,983 422 14,405 12,598
Quoted on FTSE SmallCap 610 - 610 -
Interest bearing securities 4,799 9,033 13,832 7,045
Unquoted investments 18,153 399 18,552 14,053
37,545 9,854 47,399 33,696
Net current assets 1,681 7,168 8,849 1,792
Net assets 39,226 17,022 56,248 35,488
Financed by:
Shareholders' funds 39,226 17,022 56,248 35,488
Net asset value per ordinary share: 117.31p 95.13p 109.58p 106.38p
Ordinary shares in issue 33,438,684 17,894,064 51,332,748 33,361,024
Baronsmead VCT 3 plc
Summarised Audited Statement of Cash Flows
For the year ended 31 December 2005
2005 2005
Ordinary C 2005 2004
Shares Shares Total Total
£'000 £'000 £'000 £'000
Net cash outflow from operating activities (33) (40) (73) (308)
Taxation paid - - - (83)
Capital expenditure and financial investment 1,284 (9,750) (8,466) (6,353)
Equity dividends paid (1,572) - (1,572) (1,733)
Net cash outflow before financing (321) (9,790) (10,111) (8,477)
Financing 303 15,605 15,908 (480)
(Decrease)/increase in cash (18) 5,815 5,797 (8,957)
Reconciliation of net cash flow to movement in net
cash
(Decrease)/increase in cash (18) 5,815 5,797 (8,957)
Opening cash position 1,951 - 1,951 10,908
Closing cash position 1,933 5,815 7,748 1,951
Reconciliation of net revenue before taxation to net
cash outflow from operating activities
2004
2005 2005 (as restated)
Ordinary C 2005
Shares Shares Total Total
£'000 £'000 £'000 £'000
Profit on ordinary activities before taxation 4,994 11 5,005 3,970
Profit on realisation of investments (5,088) (2) (5,090) (4,229)
Increase in debtors (154) (130) (284) (137)
Increase in creditors 215 81 296 88
Net cash outflow from operating activities (33) (40) (73) (308)
Notes
1. The audited results which cover the year to 31 December 2005 have been
prepared under UK Generally Accepted Accounting Practice (UK GAAP). A number of
new UK financial Reporting Standards have been introduced as apart of the UK
convergence programme with International Accounting Standards. The changes
affecting the Company relate to FRS 26 Financial Instruments: Measurement and
FRS 21 Events after the Balance Sheet Date. A reconciliation of these changes is
set out in Notes 7 and 8 below.
Where presentational guidance set out in the Statement of Recommended Practice
('SORP'), revised December 2005, for investment trusts issued by the Association
of Investment Trust ('AITC') 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 33,438,684 ordinary shares in issue at 31 December 2005 (31
December 2004: 33,361,024). During the year the Company issued 2,142,660
ordinary shares raising net proceeds of £2,348,000 and bought back for
cancellation 725,000 ordinary shares at a cost of £712,000. Since the Company's
AGM held on 23 March 2005, the Company has bought back 1,340,000 ordinary shares
to be held in Treasury at a cost of £1,333,000. The total number of ordinary
shares listed at 31 December 2005 was 34,778,684 (31 December 2004: 33,361,024).
During the year the Company issued 17,894,064 C shares raising net
proceeds of £17,011,000.
3. Revenue and capital returns for the ordinary shares for the year to 31
December 2005 are based on a weighted average of 33,702,319 (2004: 33,920,111)
ordinary shares in issue during the year.
Revenue and capital returns for the C shares for the period from
launch to 31 December 2005 are based on a weighted average of 11,117,964 C
shares in issue during the period.
4. Income for the year is derived from:
2005 2005
Ordinary C 2005 2004
Shares Shares Total Total
£'000 £'000 £'000 £'000
Dividend Income 132 - 132 174
Fixed interest investment 1,249 43 1,292 744
Deposit interest 80 49 129 69
1,461 92 1,553 987
5. The final proposed dividend of 3.50 pence per ordinary share will
be paid on 20 March 2006, subject to shareholder approval, to eligible
shareholders on the register on 17 February 2006.
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 2004 have been
lodged with the Registrar of Companies. The annual report for the year to 31
December 2005 will be sent to shareholders shortly and will then be available
for inspection at Exchange House, Primrose Street, London, the registered office
of the Company. Both the audited accounts for the year to 31 December 2005 and
period to 31 December 2004 contain unqualified audit reports.
7. (a) Restatement of balances as at and for the period ended 31 December 2004
There have been a number of changes to financial reporting standards that have
come into effect from 1 January 2005. The principal ones affecting the Company
are the requirement to value quoted investments at fair value and only reflect
dividends to shareholders when paid.
Investments are designated as held at fair value under revised UK GAAP and are
carried at bid prices which total their fair value of £33,696,000. Previously
under UK GAAP, they were carried at mid prices. The aggregate differences, being
a revaluation downwards of £528,000 also decreases Revaluation reserve.
No provision has been made for the final dividend on the ordinary shares for the
year ended 31 December 2004 of £900,000. Under revised UK GAAP, dividend are not
recognised until paid.
(b) Reconciliation of the Profit and Loss Account to the Income Statement for
the year ended 31 December 2004
Under revised UK GAAP the Income Statement is the equivalent of the Profit and
Loss Account reported previously.
2004
Notes £'000
Total transfer from reserves per the Profit and Loss Account (as
previously reported)
(1,571)
Add unrealised gains on revaluation of investments 1 4,173
Add back dividends paid and proposed 2 1,512
Investments held at fair value changed from mid to bid basis at 31
December 2003 3 384
Investments held at fair value changed from mid to bid basis at 31
December 2004 3 (528)
Net profit per the Income Statement 3,970
1) Unrealised gains on revaluation of investments are reflected in the Income
Statement under revised UK GAAP.
2) Ordinary dividend declared and paid during the year are dealt with through
Movements in Shareholders' Funds.
3) The portfolio valuations at 31 December 2003 and 31 December 2004 are
required to be valued at fair value under revised UK GAAP. These differ from the
previous valuations by £384,000 and £528,000 respectively.
8. (a) Restatement of opening balances as at 31 December 2003
Investments are designated as held at fair value under revised UK GAAP and are
carried at bid prices which total their fair value of £23,562,000. Previously
under UK GAAP, they were carried at mid prices. The aggregate differences, being
a revaluation downwards of £384,000 also decreases the Revaluation reserve.
No provision has been made for the final dividend on the ordinary shares for the
year ended 31 December 2003 of £1,121,000. Under revised UK GAAP, dividends are
not recognised until paid.
9. The Annual General Meeting will be held on 16 March 2006 at 11am.
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