Baronsmead Venture Trust plc

Half-yearly report for the six months ended 31 March 2023

The Directors of Baronsmead Venture Trust plc are pleased to announce the unaudited half-yearly financial report for the six months to 31 March 2023. Copies of the half-yearly report can be obtained from the following website: www.baronsmeadvcts.co.uk.

Our investment objective

·      Baronsmead 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 the Alternative Investment Market ("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, wherever possible, seek to pay two dividends to shareholders in each financial year, typically an interim dividend in September and a final dividend following the Annual General Meeting.

·      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.

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, networks and undertakes significant active marketing to 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 the management resources are in place to deliver profitable growth. The aim is to build on the business model and grow the company into an attractive target which can be sold or potentially floated in the medium term.

Financial highlights

400.9p Net asset Value ("NAV") total return to shareholders for every 100.0p invested at launch (April 1998).

NAV per share decreased 0.9 per cent. to 58.0p before deduction of dividends in the six months to 31 March 2023.

£25.0mn raised in the period (before costs).

£4.3mn Investments made into two new and three follow-on opportunities during the period (Unquoted: £3.2mn, Quoted : £1.1mn).

Cash returned to shareholders by date of investment

The table below shows the cash returned to shareholders that invested in Baronsmead Venture Trust plc dependent on their subscription cost, including the income tax available to be reclaimed on the subscription.

* C Share dividend calculated using conversion ratio of 0.9657, which is the rate the c shares were converted into ordinary shares.

* Includes proposed Interim dividend of 1.75p.

 * Shares were allotted pursuant to the 2023 Offer at individual prices for each investor in accordance with the allotment formula as set out in each Offer's Securities Note.

1.  Average effective offer price based on allotment prices between 63.4p and 67.2p.2. Average effective offer price based on allotment prices between 61.5p and 64.5p.

Chair's statement

Fiona Miller Smith

Chair

Over what has been a turbulent six months, the Company's net asset value (NAV) declined slightly by 0.5p per share to 58.0p. Continued weakness in the value of the Company's unquoted investments was largely although not completely offset by the modestly positive performance of the listed portfolio. This is described more fully below, and highlights the benefits of the Company's investment policy of having a combination of unquoted and listed assets with the aim of providing a more consistent total return to shareholders over the medium to long term. After the period end, NAV recovered through further good performance of the listed portfolio, as reported on below.

Over the six months to 31 March 2023, inflation in the UK remained high and interest rates rose steadily. Consequently, UK economic conditions continued to be challenging and this has generated much uncertainty across the financial markets. This was compounded in the first quarter of 2023 by the collapses of Silicon Valley Bank and Credit Suisse in close succession which led to fears of a more widespread banking sector contagion.

At the time of writing, it's fair to say that consumer and business confidence remain fragile. In such an environment we might expect there to be further weakness in the valuation of smaller companies and this is particularly the case with the types of business the VCT rules require the Company to invest in. However, the Manager continues to believe that, in aggregate, the

fundamentals of the underlying portfolio companies remain robust and the growth prospects for the majority of investee companies continue to be positive over the medium term.

Results

During the six months to 31 March 2023, the Company's NAV per share decreased 0.9 per cent. from 58.5p to 58.0p after the payment of a final dividend of 2.75p per share on 3 March 2023. The table below breaks down the movement in NAV over the six months.

The Board is pleased to report that over the two months to 31 May 2023, NAV was 59.1p per share, a 1.9 per cent. increase over the NAV as at 31 March 2023. This was driven by firmer quoted markets and further increases in the value of the Company's listed investments.

Dividends

The Board is pleased to declare an interim dividend of 1.75p per share to be paid on 8 September 2023 to shareholders on the register as of 11 August 2023. The Board is aware that dividends are an important part of the total return to the shareholders' investment in the Company. As such, the Board is aiming to achieve its dividend policy objective of an annual yield of 7.0 per cent. based on the NAV at the beginning of the financial year. Having said that, I must of course remind shareholders this is not a guarantee and that payment dates and the amount of future dividends depend on the level and timing of profitable realisations.

Portfolio review

The table below provides a summary of each asset class and the return generated during the period under review.

*By value at 31 March 2023.
**Includes investee companies with holdings by more than one fund. Total number of individual companies held is 166.
***Return includes interest received on unquoted realisations during the period.
^# Represents cash, OEICs and net current assets. % return in the period relates only to the OEICs.

The value of the unquoted portfolio decreased 13.6 per cent. in the six months to 31 March 2023. The drop in value was driven by a combination of lower benchmark market comparables and softening trading performance of the investee companies as a result of the decline in consumer confidence.

The value of the Company's portfolio of investments directly held in AIM-traded companies increased 2.1 per cent. in the six months to 31 March 2023. The value of the Company's investment into the LF Gresham House UK Micro Cap Fund ("Micro Cap") increased by 7.4 per cent., the LF Gresham House UK Smaller Companies Fund ("Small Cap") increased by 4.6 per cent. and the LF Gresham House Multi Cap Income Fund increased by 6.8 per cent. in the period. This was primarily due to positive news flow across the portfolio being well received by the markets with a number of trading updates demonstrating better than expected financial performance. In the Manager's regular reporting to the Board, the Directors were pleased to learn that in the six months to 31 March 2023, 85.8 per cent. of the companies in our listed portfolio have reported positive news flow in terms of the financial performance. This is very welcome news given the economic and political uncertainties we are currently experiencing.

Investments

I am pleased to report that the Company made two new investments totalling £1.3mn and three follow-on investments with a combined value of £3.0mn in the six months to 31 March 2023. Below are descriptions of the new investments made:

·      Cognassist (unquoted) -a platform for supporting those with learning needs.

·      Connect Earth (unquoted) - helps businesses track their carbon emissions.

·      Patchworks (unquoted) - a platform for connecting businesses' applications.

·      Oberon (quoted) - wealth advisory service for individuals and businesses.

·      Seeen (quoted) - a video technology business.

Following the period end, a total of £1.8mn was invested as follows:

·      a new unquoted investment of £0.8mn in Dayrize, a platform for assessing the sustainability of products,

·      a follow‑on investment of £0.6mn into Airfinity, which is in our unquoted portfolio, and

·      a follow‑on investment of £0.4mn into Panthera Biopartners, which is in our unquoted portfolio

Realisations

During the period both Glisser, a provider of conference and educational software and CMME, a specialist mortgage broker, went into administration. Both businesses had experienced very challenging trading conditions over the past year and their valuations had already been written down.

Following the period end, in the unquoted portfolio, Evotix was acquired resulting in a gross money multiple of 0.7x original cost. In addition, further proceeds from previous sales of unquoted investments were received as follows:

·      deferred consideration from the sale of Key Travel in 2018, resulting in a gross money multiple of 3.2x original cost, and

·      earn‑out consideration from the Pho realisation in 2021, resulted in a gross money multiple of 3.1x original cost.

In the listed portfolio, the Manager continued to take profits from partial sales of the Company's holding of Cerillion plc resulting in proceeds of £0.5mn, and a gross money multiple of 15.8x original cost.

Fundraising

I am pleased to report that during the period the Company successfully raised £25.0mn (before costs) through an offer for subscription which became fully subscribed in March 2023. The Directors are pleased to welcome the 873 new shareholders who invested for the first time and to thank the 478 existing shareholders who continue to support the Company.

The Board will consider whether to raise new funds in the 2023/24 tax year. This will be determined by the Company's cashflow and its anticipated requirements to fund new and follow‑on investments over the next two to three years. The Board appreciates that shareholders would like plenty ofnotice of its fundraising intentions and will ensure that shareholders are informed of any such fundraising at the earliest practical time.

Consumer Duty

The Financial Conduct Authority (FCA) has introduced the concept of Consumer Duty, the rules and principles of which come into effect in July 2023. Consumer Duty is an advance on the existing concept of 'treating customers fairly' and looks to ensure good outcomes for purchasers of investment products. As a listed entity, Baronsmead Venture Trust plc, alongside other investment companies, are not themselves subject to Consumer Duty.

Instead, in their role as promoter of and Investment Manager to the Company, it is Gresham House, and any other FCA regulated parties associated with your investment in the Company, that must uphold the principles behind Consumer Duty. To that end, the Board is working with Gresham House to review the information that should be provided to assist investors and their advisers to discharge their obligations under Consumer Duty.

VCT Regulation - Financial Heath Test

Since the various VCT rule changes in both 2015 and 2018, VCT qualifying investments have become focussed on smaller, younger companies. As a result, when the Manager makes a new investment, they expect to make further follow-on investments as the investee company progresses and where the business case for the investment is justified. These follow-on investments are subject to the same VCT compliance rules as new deals and both rely on certain criteria being met, including the Financial Health Test.

The Financial Health Test is not something new and was primarily introduced as an anti-abuse regulation. However, following amendment to HMRC's guidance, there has been an effective tightening of the interpretation of the Financial Health Test. This is resulting in the restriction of potential follow-on VCT investment to support certain portfolio companies. This has the potential to negatively impact shareholders' returns as a result of portfolio companies going into administration when they might otherwise have gone on to be successful. Furthermore, as this is an industry wide issue, this measure increases the uncertainties small companies face at a particularly difficult time and may well result in unnecessary job losses and hardship to employees and their families and has the potential to reduce the overall tax efficiency of the VCT scheme as a whole.

The Board continues to monitor developments in this area carefully and supports the representations being made by the AIC and the VCTA to HMRC and HM Treasury to seek a change to HMRC's guidance in this area.

Outlook

The Board expects that market conditions will remain volatile throughout 2023 as the economic and political backdrop remain uncertain. While it is anticipated that inflation will gradually start to fall later in the year, it remains stubbornly high, and interest rates seem unlikely to fall and may rise further over the coming months.

Against this the Company's portfolio remains highly diversified, and is largely positioned in sectors which the Manager expect to provide long‑term growth potential. We remain committed to investing through the economic cycle as experience suggests that this can produce superior returns over the longer term. This can also provide an opportunity for the Company to make high quality investments and build strategic stakes in businesses with great potential at good prices. This applies to both

new investments and follow‑on investments in the portfolio. The Manager continues to see a good pipeline of potential investments and the Company remains suitably resourced to support investment into new and existing portfolio companies.

Fiona Miller Smith

Chair

12 June 2023

Investments in the period

Realisations in the period

There were no realisations in the period.

Responsibility statement of the Directors in respect of the half-yearly financial report

Half-yearly report

The important events that have occurred during the period under review, the key factors influencing the financial statements and the principal uncertainties for the remaining six months of the financial year are set out in the Chair's statement and the Strategic report.

The principal risks facing the Company are mostly unchanged since the date of the Company's Annual Report for the financial year ended 30 September 2022 and continue to be as set out in that Report on pages 18 and 19.

Risks faced by the Company include but are not limited to; loss of approval as a Venture Capital Trust, legislative risk, investment performance risk, risk of economic, political and other external factors, regulatory and compliance risk and operational risk. The Board considers the aftermath of the COVID‑19 pandemic and the Russian invasion of Ukraine to be factors which permeate these risks, and their impacts for the remaining six months of the year continue to be kept under review.

Responsibility statement

Each Director confirms that to the best of their knowledge:

·      the condensed set of financial statements has been prepared in accordance with FRS 104 Interim Financial Reporting Standards and gives a true and fair view of the assets, liabilities, financial position and profit or loss of the Company.

·      This half-yearly report includes a fair review of the information required by:

a)   DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of

important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

b)   DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party

transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Company during that period; and any changes in the related party transactions described in the last annual report that could do so.

The half-yearly report was approved by the Board of Directors on 12 June 2023 and was signed on its behalf by Ms Fiona Miller Smith, Chair.

Fiona Miller Smith

Chair

12 June 2023

Condensed Income Statement

For the six months to 31 March 2023 (unaudited)

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 unaudited Statement of Total Comprehensive Income of the Company prepared in accordance with the Financial Reporting Standard ("FRS"). 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").

Condensed statement of changes in equity

For the six months to 31 March 2023 (Unaudited)

For the six months to 31 March 2022 (Unaudited)

For the year ended 30 September 2022 (Audited)

Condensed Balance Sheet

As at 31 March 2023 (Unaudited)

Condensed Statement of Cash Flows

For the six months to 31 March 2023 (unaudited)

Notes to the financial statements

For the six months to 31 March 2023 (Unaudited)

1 Basis of preparation

The condensed financial statements for the six months to 31 March 2023 comprise the unaudited statements set out on pages 13 to 16 together with the related notes on pages 17 to 21. The Company applies FRS 102 and the AIC SORP for its annual financial statements. The condensed financial statements for the six months to 31 March 2023 have therefore been prepared in accordance with FRS 104 'Interim Financial Reporting' and the principles of the AIC SORP. They have been prepared on a going concern basis. The accounts have been prepared on the same basis as the accounting policies set out in the Company's Annual Report and Financial Statements for the year ended 30 September 2022.

The financial information contained in this half-yearly financial report does not constitute statutory accounts as defined in sections 434 - 436 of the Companies Act 2006. The half-yearly financial report for the six months ended 31 March 2023 and for the six months ended 31 March 2022 have been neither audited nor reviewed by the Company's auditors. The information for the year to 30 September 2022 has been extracted from the latest published audited financial statements, which have been filed with the Registrar of Companies. The report of the auditor for the audited financial statements for the year to 30 September 2022 has been extracted from the latest published audited financial statements, which have been filed with the Registrars of Companies. The report of the auditor for the audited financial statements for the year to 30 September 2022 was: (i) unqualified; (ii) did not include a reference to any matters to which the auditor 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. No statutory accounts in respect of any period after 30 September 2022 have been reported on by the Company's auditors or delivered to the Registrar of Companies.

Copies of the half-yearly financial report have been made available to shareholders and are available from Gresham House, 80 Cheapside, London, EC2V 6EE.

2   Performance and shareholder returns

Return per share is based on a weighted average of 321,742,586 ordinary shares in issue (31 March 2022 - 290,940,471 ordinary shares; 30 September 2022 - 303,530,368 ordinary shares).

Earnings for the first six months to 31 March 2023 should not be taken as a guide to the results of the full financial year to 30 September 2023.

3.  Called-up share capital

Allotted, called-up and fully paid:

During the six months to 31 March 2023, the Company issued 36,739,031 shares at net proceeds of 22,334,000 (after costs). During the same period, the Company purchased 2,742,252 shares to be held in treasury at a cost of £1,622,000. The Company also sold 733,000 treasury shares at a cost of £416,000. At 31 March 2023 the Company held 27,836,727 ordinary shares in treasury. Shares may be sold out of treasury below Net Asset Value as long as the discount at issue is narrower than the average discount at which the shares were bought into treasury.

Excluding treasury shares, there were 350,947,945 ordinary shares in issue at 31 March 2023 (31 March 2022 - 316,473,613 ordinary shares; 30 September 2022 - 316,218,166 ordinary shares).

4.  Dividends

The final dividend for the year ended 30 September 2022 of 2.75p per share (2.55p capital, 0.2p revenue) was paid on 3 March 2023 to shareholders on the register on 3 February 2023. The ex‑dividend date was 2 February 2023.

During the year to 30 September 2022, the Company paid an interim dividend on 9 September 2022 of 3.0p per share (2.7p capital, 0.3p revenue).

5.  Investments

All investments are initially recognised and subsequently measured at fair value. Changes in fair value are recognised in the Income Statement.

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.

The valuation of unquoted investments contained within level 3 of the Fair Value hierarchy involves key assumptions dependent upon the valuation methodology used. The primary methodologies applied are:

·    Cost of recent investment

·    Earnings Multiple

·    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. Key assumptions for the earnings multiple approach are the selection of comparable companies and the use of either historic or forecast revenue or earnings, as considered most appropriate. Other assumptions include the appropriateness of the discount magnitude applied for reduced liquidity and other qualitative factors. These assumptions are described in more detail in note 2.3 in the Company's Report and Financial Statements for the year to 30 September 2022.The techniques used in the valuation of unquoted investments have not changed materially since the date of that Report.

6.  Other required disclosures

6.1 Segmental reporting

The Company has one reportable segment being investing in primarily a portfolio of UK growth businesses, whether unquoted or traded on AIM.

6.2 Principal risks and uncertainties

The Company's financial instruments consist of equity and fixed interest investments, cash balances and liquid resources. Its principal risks are therefore market risk, price risk, credit risk and liquidity risk. Other risks faced by the Company include loss of approval as a Venture Capital Trust, legislative, investment performance, economic, political and other external factors, regulatory and compliance and operational risks. These risks, and the way in which they are managed, are described in more detail in the principal risks and uncertainties table within the Strategic report section in the Company's Report and Financial Statements for the year to 30 September 2022. The Board continues to regularly review the risk environment in which the Company operates.

6.3 Related parties

Gresham House Asset Management Ltd (the "Manager") manages the investments of the Company. The Manager also provides or procures the provision of secretarial, administrative and custodian services to the Company. Under the management agreement, the Manager receives a fee of 2.0 per cent. per annum of the net assets of the Company. This is described in more detail under the heading 'The management agreement' within the Strategic Report in the Company's Annual Report and Financial Statements for the year to 30 September 2022. During the period the Company has incurred management fees of £1,753,000 (31 March 2022 - £2,018,000; 30 September 2022 - £3,870,000) and secretarial fees of £74,000 (31 March 2022 - £69,000; 30 September 2022 - £136,000) payable to the Manager. A performance fee of £nil has been accrued at 31 March 2023 (31 March 2022 - £nil; 30 September 2022 - £nil). This is described in more detail under the heading 'Performance fees' within the Strategic Report in the Company's Annual Report and Financial Statements for the year to 30 September 2022.

6.4 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. In arriving at this conclusion, the Directors have considered the Company's cash balances, the liquidity of the Company's investments and the absence of any gearing. The Directors are therefore also satisfied that the Company has adequate financial resources to continue in operation for at least the next 12 months and that, accordingly, it is appropriate to adopt the going concern basis in preparing the financial statements.

6.5   Post balance sheet events

The following events occurred between the balance sheet date and the signing of these financial statements:

·      The 30 April 2023 NAV of 59.0p was announced on 5 May 2023 and the 31 May 2023 NAV of 59.1p was announced on 6 June 2023. At the date of publishing this report, the Board is unaware of any matter that will have caused the NAV per share to have changed significantly since the latest NAV.

·      3 million shares were issued on 3 April 2023 at allotment prices between 58.9p and 61.8p under the current offer.

·      Purchased 0.7 million Ordinary Shares of 10.0p on 5 April 2023 at a price of 54.3p per share to be held in Treasury.

·      Follow‑on investment into Airfnity Ltd completed in April 2023 totalling £0.6mn.

·      Follow‑on investment into Panthera Biopartners completed in June 2023 totalling £0.4mn.

·      Two follow‑on investments, into Multi Cap, completed in April and May 2023, totalling £2.5mn.

·      Two follow‑on investments, into Small Cap, completed in April and May 2023, totalling £2.5mn.

·      One new investment, into Dayrize B.V., completed in May 2023 totalling £0.8mn.

·      Partial realisation in MXC Capital Ltd was made in April, following a corporate action, realising proceeds of £0.01mn and making a return of 0.6x cost.

·      Partial realisations in Cerillion plc were made in April and May, realising proceeds of £0.5mn and making a return of 15.8x cost.

·      Received deferred proceeds of £1.1mn from Pho in May 2023, which was realised in July 2021, making a total return of 3.1x cost.

·      Realised Evotix in May 2023, receiving proceeds of £0.7mn, making a return of 0.7x cost.

·      Received deferred proceeds of £0.3mn from Key Travel in May 2023, which was realised in May 2018, making a total return of 3.2x cost.

 Corporate Information

Δ   Senior Independent Director

*  Chair of the Audit Committee

† Chair of the Nomination Committee

††  Chair of the Management Engagement and Remuneration Committee

LEI: 213800VQ1PQHOJXDDQ88