The Baronsmead VCTs AIC VCT SEMINAR 2 FEBRUARY Registered office address: 100 Wood Street, London EC2V 7AN. Registered in England No: OC

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1 AIC VCT SEMINAR 2 FEBRUARY 2016 The Baronsmead VCTs Registered office address: 100 Wood Street, London EC2V 7AN. Registered in England No: OC Livingbridge VC LLP is a limited liability partnership authorised and regulated by the Financial Conduct Authority (FCA). All sources Livingbridge VC LLP unless otherwise stated.

2 Important Notice This document is for information only and is being issued and provided by Livingbridge VC LLP to a limited number of persons of the kind described below in relation to Baronsmead VCT plc, Baronsmead VCT 2 plc, Baronsmead VCT 3 plc, Baronsmead VCT 4 plc, and Baronsmead VCT 5 plc ( the Companies and each a Company ). This document has not been approved by Livingbridge VC LLP ( Livingbridge ) for the purposes of the Financial Services and Markets Act 2000 ( FSMA ). Accordingly this document is directed solely at persons who have professional experience in matters relating to investments being persons who fall within Article 19(1)(a) of the FSMA (Financial Promotion) Order This document is being supplied to you in your capacity as an expert (in order to assist you to formulate your advice to your clients). It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of person and in any event and under no circumstances should persons of any other description rely on or act upon its contents. It must not be reproduced, further distributed or published (in whole or part) by you or any other person. In particular, this document has not been designed for retail investors. Livingbridge does not take responsibility for its compliance with FCA rules concerning communications to retail clients. If you wish to communicate any information about the Companies to a retail investor, you are responsible for ensuring such information is suitable for consumption by them. This document is not a prospectus or listing particulars, does not contain any representations as to accuracy or completeness and does not constitute or form part of any offer of invitation to subscribe, underwrite or solicit any offer or invitation to subscribe, underwrite or solicit any offer to purchase or subscribe for securities, nor shall it or any part of it form the basis to be relied upon in connection with any offer to purchase or subscribe for securities, nor shall it or any part of it form the basis of or be relied upon in connection with any contract therefore. Any investment in the new shares of any of the Companies must be made pursuant to offer documents and/or prospectuses issued by the relevant Company. Risk Warnings The market price of the shares in the Companies may not be fully reflected in the underlying net asset value. The value of the investment may go down as well as up and an investor may not get back the full amount invested. Although the shares will be listed on the London Stock Exchange s market for listed securities, it is likely that the shares will be illiquid and shareholders may have difficulty in selling them. Past performance is not necessarily a guide to future performance. Market risks There can be no guarantee that the Companies investment objectives can be achieved. Portfolio investments involve a higher degree of risk than investment in companies traded on the main market. There are potential difficulties in acquiring, valuing and disposing of underlying investments and information for determining the value or risks may also not be available. The value of the portfolio companies depends on stock market conditions. Tax Related Risks The current VCT tax reliefs may change during the time shares are held and can be retrospective. The value of the tax reliefs depends on the personal circumstances of the shareholders, who should consult their own tax advisers before making an investment. There can be no guarantee that the Companies will retain full VCT status which could lead to adverse tax consequences for investors, including a requirement to pay the up front 30% income tax relief. 2

3 Agenda About Livingbridge Investment Strategy Investment Performance Case studies Proposed changes to VCT legislation Proposed merger of Baronsmead VCT and Baronsmead VCT 2 Summary Appendices 3

4 An Introduction to Living Bridge LIVINGBRIDGE

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6 Livingbridge Experienced investment manager Managing VCTs since 1995 Investment in large team Regional offices Sector research Pro-active deal origination Private equity into established and profitable companies with growth potential. Active portfolio management. Livingbridge executive joins board for unquoted private equity deals Manchester Birmingham London Total Livingbridge FUM As at 30 September billion 6

7 Sector focus We focus our investment activity in four sectors where we have developed a deep understanding and strong networks. This allows us to identify excellent investment opportunities and provide investee companies with the right support to help them prosper. Business Services Consumer Markets Healthcare & Education Technology, Media & Telecommunications 7

8 Building the process for Baronsmead investment performance Add Value Exit Strong track record of exits Focus Active portfolio management style Deal Origination Focussed on established, profitable companies Investment in deal origination Sectors Well Resourced Sector research and networking Private equity business: LPs as well as VCTs 8

9 Investment performance summary As at 30 September 2015 Launch date NAV ( millions)* NAV (p per share)* Mid share price (p per share) NAV total return since launch (%) Average annual dividends paid/ declared since launch (p per share) Baronsmead VCT Nov % 7.4 Baronsmead VCT 2 April % 7.4 Baronsmead VCT 3 Jan % 7.6 Baronsmead VCT 4 Dec % 5.9 Baronsmead VCT 5 Mar % 4.2 * Stated before the deduction of interim dividends payable on 18 December AIC methodology: The NAV total return to the investor (rebased to 100) from launch to 30 September 2015 assuming that dividends paid were re-invested at the NAV of that Company at the time the shares were quoted ex-dividend. 9

10 Investment performance - NAV Total Returns* As at 30 September year 5 years 10 years Baronsmead VCT 11.1% 65.9% 98.6% Baronsmead VCT % 69.5% 97.3% Baronsmead VCT 3 8.6% 60.5% 98.2% Baronsmead VCT 4 7.9% 50.5% 79.3% Baronsmead VCT % 65.8% N / A - launched March 2006 AIC methodology: The NAV total return to the investor (rebased to 100) to 30 September 2015 assuming that dividends paid were re-invested at the NAV of that Company at the time the shares were quoted ex-dividend. 10

11 Recent new investments across Baronsmead family Amount committed % Equity held by all funds* 5.0m 34.0% 5.7m 30.0% 8.4m 37.5% 7.4m 70.1% 5.5m 45.0% 9.5m 38.0% *All funds managed by investment manager, Livingbridge VC LLP and Livingbridge EP LLP 11

12 Examples of recent realisations across Baronsmead Family Multiple Exit date 2.4x Nov13 2.5x Dec x Jan x Mar x Dec x Feb x Mar x Feb x June 15 12

13 CURRENT PORTFOLIO COMPANY CREATE FERTILITY CASE STUDY

14 What does Create Fertility do? 14

15 Livingbridge: approach to growing value People Non-clinical recruitment: Chair, FD, Head of Strategy, Ops Manager, Digital Marketing Manager Clinical recruitment: Doctors, Embryologists, Nurses Reduced key person reliance on Medical Director / CEO Platform St Paul s flagship clinic / centre of excellence 2 new satellite clinics: Bristol and Dublin In-sourced financial accounting and improved internal reporting Positioning Increased volumes. No. 2 / 3 in London, top 10 in UK Developed distinctive brand messaging: natural/mild authority Successful East of England NHS tender Strategic focus on London and SE

16 What next? Fill the flagship NHS Build further clinic Medical innovation Gain scale in a consolidating market 16

17 REALISATION EMPIRE WORLD TRADE - CASE STUDY

18 Realisation Case Study - Empire World Trade What does EWT do? Leading UK importer and distributor of top fruit (apples, pears) Key link between growers and retailers Added value services quality control, packing Reasons for investing? Strong established relationships with fragmented growers Strong operational capability Scale player strong profit record BUT customer concentration 18

19 Realisation Case Study - Empire World Trade Investment - Aug 2006 Sales c 80m EBITDA c 3m Investment 5.2m for 42% Exit - Jan 2014 Sold to Univeg Sales c 80m Return nil What went wrong? Supermarket competition apple pricing became very sensitive Producer quality improved less need for quality control Supermarkets started trialling sourcing direct New broker entrants Margins Working capital Bank debt used in MBO Livingbridge and new management worked very hard over 5 years to gain recovery exit 19

20 REALISATION LUXURY FOR LESS - CASE STUDY

21 The Business Owned, scalable, Far East Sourcing Unbranded, high quality bathroom products, low cost sourcing, industry leading margins Developing multi online channels ebay Amazon Growing shift to online purchasing of bathroom products 21

22 Finding and winning Finding Winning The deal Early introduction to founder by advisor pre process Second meeting to build relationship Made an early proposal at start of auction process Allowed time to shape into final deal structure whilst others were working on first bids Advisor relationship and rapport with founder Credentials in building online businesses Livingbridge conviction to invest in the management team and platform, in market with strong growth dynamics Management team build required Appointed Livingbridge Operating Partner as Chair Investment in operations, products range, marketing and brand required 8.4m invested for 40% stake 22

23 Selling Approach and initial assessment Key considerations The deal May 2014 May Dec 2014 Feb 2015 Unsolicited approach by Wolseley advisor Very early in our hold - recent difficult trading Lets be opportunistic at an aspirational valuation Clear valuation rules of engagement Flush out strategic appetite; provide basic information Trading improving and growing into valuation New CEO in or out of the deal? Temptation to hold? So why sell? Buyer appetite consistent if not this then another asset Early signs competitive landscape hardening cost of winning customers increasing Deliver return to BVCTs Signed exclusivity Dec 2014 BVCTs sold after a 20 month hold Management and founders partly cashed out Wolseley has consumer platform to use for European roll out 23

24 Proposed mergers of Baronsmead VCTs Merger proposals sent to shareholders in January 2016 (Baronsmead VCT & Baronsmead VCT 2 and Baronsmead VCT 3 & Baronsmead VCT 4) Anticipated merger benefits include: Create larger merged companies with net assets of more than 150m (based on NAVs as at 30 September 2015) Estimated annual costs savings for each of the enlarged companies of around 300,000 per annum. Remove the duplication of shareholder communications Fundraisings launched alongside merger proposals 24

25 Changes to VCT legislation New age limit for investee companies - investment to be made within 7 years (10 years for knowledge intensive companies) of first commercial sale, except where: State aid investment had previously been made within 7/10 years of first commercial sale; and / or It is a transformative investment of >50% of average turnover of the last 5 years and investment is for the purposes of developing a new product or entering a new geographical area New life time limit of risk finance State aid of 12m ( 20m for knowledge intensive companies) Prohibition on MBOs / acquisition of trade and assets for all VCT funds 25

26 Potential future flexibility in VCT rules Replacement Capital ( money out as well as money in ) The government is keen to introduce increased flexibility for the schemes to be used for replacement capital, where the amount invested in newly issued shares is at least equal to the amount invested in secondary shares. The intention is for this change to be introduced through secondary legislation at a later date, subject to State aid approval. The government will continue to work hard to ensure that these changes are made as quickly as possible, in line with the evidence available David Gauke, Financial Secretary to the Treasury, October

27 Livingbridge approach to investing under the new rules Our strategy remains to invest in established, profitable, growing companies Lower EBITDA threshold to expand target population Roll-out models (e.g. restaurants, nurseries) a key area to target All Livingbridge sectors are still relevant Likely to be smaller initial investments followed by subsequent top-up investments Where relevant, potentially longer hold periods to reach maturity 27

28 Marketing plan Advisor marketing Identified 426 relevant advisors/introducers We are helping them understand rules and finding targets for us Embedded dealflow Our existing direct origination machine The established small company category Already have a number of hot targets Livingbridge Sectors Each sector team working on sub-sectors to suit the new VCT rules 28

29 Contact details Michael Probin Livingbridge 100 Wood Street London EC2V 7AN Tel: Livingbridge VC LLP is a limited liability partnership registeredinenglandno:oc320408andisauthorisedand regulated by the Financial Conduct Authority (FCA). Registered office address: 100 Wood Street, London EC2V 7AN. All sources Livingbridge VC LLP unless otherwise stated, all figures as at 30 September 2015 unless otherwise stated. 29