DOWNING ONE VCT PLC
LEI: 213800R88MRC4Y3OIW86
24 June 2021
Final Results
Financial Summary
| Unaudited | Audited | Audited | |||
| 31 May | 31 Mar | 31 Mar | |||
| 2021 | 2021 | 2020 | |||
| Pence | Pence | Pence | |||
| Net asset value per share (“NAV”) | 60.20 | 58.20 | 57.6 | ||
| Cumulative dividends paid since 12 November 2013 | 38.75 | 38.75 | 35.5 | ||
| Total Return (net asset value plus cumulative dividends paid per share) | 98.95 | 96.95 | 93.1 | ||
| Dividends in respect of financial year | |||||
| Interim dividend per share | 1.25 | 2.0 | |||
| Proposed final dividend per share | 1.25 | 2.0 | |||
| 2.50 | 4.0 |
Chairman’s Statement
I present the Company’s Annual Report for the year ended 31 March 2021. This has been an unprecedented year, which began right at the start of the pandemic and the first coronavirus lockdown. Since then there have been many shifts in the government-imposed restrictions and finally we now seem to be moving towards the economy fully reopening.
Many of the businesses in the Company’s portfolio have been able to adapt reasonably well to the conditions and may be coming out of the pandemic as stronger businesses than they were before. The Company does however hold investments in some sectors which have been heavily hit by the shutdown, most significantly within the hospitality sector, where recovery of value is unsurprisingly expected to take some time.
Net asset value and results
As at 31 March 2021, the net asset value per share (“NAV”) stood at 58.2p, an increase of 3.85p (6.7%) after adding back dividends of 3.25p per share which were paid during the year.
The Income Statement shows a gain attributable to equity shareholders for the year of £6.2 million comprising a revenue loss of £616,000 and a capital gain of £6.8 million.
Investment portfolio
Over the year to 31 March 2021, the Investment Adviser was able to develop a very strong pipeline of investment opportunities. As a result, the Company made a significant number of new investments. 27 new and follow on investments were completed, totalling £21.4 million. In line with current VCT regulations, all 27 investments were growth investments, with £1.5 million invested into quoted growth businesses and £19.9 million invested into unquoted growth businesses, which tend to be younger businesses with a high risk/reward ration. Of the 27 investments made during the period, 17 of these were into new businesses and 10 were follow on investments.
At the year end, the Company held a portfolio of 98 active investments. Of these, 32 are either quoted on AIM or other UK exchanges and have a value of £24.6 million (28% of the portfolio, excluding cash). The 40 unquoted growth investments have a value of £37.5 million and represent 42% of the portfolio and the 26 unquoted yield focused investments have a value of £27.1 million and represent 30% of the portfolio.
The year under review saw total unrealised gains of £7.6 million.
The core strategy of the team managing the quoted investments is to take influential stakes in quoted companies and work closely with them as they develop. This, along with improving market sentiment, has helped to deliver a good recovery over the year, giving rise to unrealised gains of £6.4 million.
The unquoted growth portfolio, which is now the focus of the majority of new investment activity, comprises of many investments in young and immature businesses.
In some cases, the severity and duration of the pandemic had been very detrimental to prospects. However, the Manager has been a very active investor during the latter part of the year, backing businesses where their resilience to the impact of the pandemic could be fully assessed before investing. Overall unrealised gains for the year were £719,000.
The unquoted yield-focused portfolio is the area most disrupted by the pandemic, with significant exposure to hospitality businesses and care homes. Generally, the hospitality businesses have fared as well as could be expected considering that most venues were closed for large parts of the year. The care homes businesses adapted to the conditions well and avoided any major problems. Following the release of some provisions made in the prior year, the yield focussed portfolio produced unrealised gains of £512,000 over the year.
Further details on the investment activity are included in the Investment Adviser’s Reports below.
Dividends
Downing ONE has a policy of seeking to pay annual dividends of at least 4% of net assets per annum. In the past the Company has sometimes been able to exceed the base target. However, in view of the fact that the portfolio has not produced any significant realised gains in the year and other considerations, the Board believes it is appropriate to set the dividend level at close to the base target level this year.
The Board is proposing to pay a final dividend of 1.25p per share on 27 August 2021, subject to Shareholder approval at the forthcoming AGM, to Shareholders on the register at 30 July 2021. This will bring total dividends in respect of the year ended 31 March 2021 to 2.5p per share (2020: 4.0p), equivalent to 4.3% based on opening NAV.
Shareholders are reminded that the Company operates a Dividend Reinvestment Scheme for those investors that wish to reinvest their dividends and obtain further income tax relief on the reinvested dividend. A Dividend Reinvestment Form is available on Downing’s website or further information can be obtained by contacting Downing.
Directorate
In February 2021 Chris Allner was appointed as a non-executive director of the Company. Chris is a partner of Downing LLP, the Investment Adviser, with extensive experience in the unquoted ventures sector and currently chairs Downing’s Investment Committee. The Board believes that the synergies between the Board and its Investment Adviser will be further enhanced as a result of the appointment. For the avoidance of doubt, Chris will not be remunerated as a director by the VCT.
The Board has reviewed its composition and believes that the four directors between them have a good range of relevant skill sets which positions the Board well to oversee the Company’s activities. The Board will, however, continue to consider whether any further board changes would benefit the Company in the future as the Company’s portfolio continues to shift its focus away from the legacy investments.
Responsible investment
The Board notes the Investment Adviser, Downing LLP’s, commitment to being a “Responsible Investor”. Downing LLP place Environmental, Social and Governance (ESG) criteria at the forefront of their business and investment activities in line with best practice and in order to enhance returns for their VCT’s investors.
Further detail on the Investment Adviser’s approach to responsible investment including the key principles and their screening approach can be found within the annual report.
Share buybacks
The Company continues to operate a policy of buying in its own shares that become available in the market at a 5% discount to NAV (subject to liquidity and regulatory restrictions).
During the year, the Company purchased and subsequently cancelled 3,401,061 shares at an average price of54.6p per share.
The Company retains Panmure Gordon as its corporate broker to assist in operating the share buyback process and ensuring that the quoted spread on the Company’s shares remains at a reasonable level.
VCT Qualification
At 31 March 2021, qualifying investments represented 83.5% of total investments (including cash). The Board expects that the minimum VCT qualification level of 80% will continue to be maintained for the foreseeable future.
Annual General Meeting (“AGM”)
With social distancing restrictions expected to be relaxed, we are planning to hold a usual physical AGM this year. The AGM will be held at Downing LLP, 6th floor, St. Magnus House, 3 Lower Thames Street, London, EC3R 6HD at 10:15 a.m. on 10 August 2021.
If you intend to attend the AGM, please also notify us by email to d1agm@downing.co.uk in case there are any changes to arrangements that need to be communicated at short notice.
Three items of special business are proposed at the AGM:
- one in respect of the authority to buy back shares as noted above͖ and
- two in respect of the authority to allot shares.
The authority to allot shares provides the Board with the opportunity to consider raising further funds without having to necessarily incur the expense of seeking separate approval via a shareholder circular. Any further fundraising decisions will take account of the level of uninvested funds and the rate of investment.
Fundraising
The Company launched a new offer for subscription on 11 September 2020. To date the offer has raised £13.1 million and the offer has now been extended to 31 August 2021. With the new funds from the current offer, the Company has sufficient cash reserves to provide continued support to existing portfolio companies.
The Board is monitoring the flow of new investment opportunities from the investment adviser and may consider a smaller non-prospectus offer for subscription for the next VCT fundraising season.
Outlook
It has been reassuring to see the recovery in the quoted portfolio over the year, and the Board takes comfort from the fact the quoted team believes there are good prospects for further growth.
The yield focussed portfolio was heavily impacted by the pandemic but has now stabilised and the gradual return to more normal conditions may allow some recovery of capital value, although this is expected to be a slow process.
The unquoted growth portfolio now represents the largest proportion of the Company’s investments by value and will continue to grow as new investments are made within the current VCT regulations. Some of older investments in this category which are developing well, along with many of the newer investments made over the last year, have created a portfolio which, we believe, now has the potential to drive the Company’s growth over the coming years.
The Board acknowledges that the overall performance of the Company in recent years has been disappointing. Downing’s investment advisory team has developed significantly over this time and is now able access a strong and broad pipeline of attractive investment opportunities, which has resulted in a significant number of new additions to the portfolio. With these new investments, plus a number of earlier investments that are now progressing well and a promising quoted portfolio, we believe that the Company is now better placed to deliver improved performance in the medium term.
I look forward to updating Shareholders in the half year report for the period end 30 September 2021.
Chris Kay
Chairman
Investment Adviser’s Report - Overview
Introduction
We present a review of the investment portfolio and activity over the last financial year. Our review is split into three parts comprising:
- this overview,
- a detailed report on the unquoted investments, and
- a report on the quoted investments.
Portfolio Overview
At 31 March 2021, the Company held a portfolio with a value of £89.2 million comprising 98 quoted and unquoted companies, across a diverse range of sectors in both the growth and yield-focused categories. Investment valuations at the year-end have been significantly impacted by the coronavirus pandemic and lockdown, although we have also seen a number of companies act decisively resulting in an overall unrealised gain. Further detail is included below.
The Company has been an active investor over the year with £21.4 million deployed into 17 new and 10 existing investments. All of the 27 new investments made were growth investments, with six being quoted growth investments and the remaining 21 investments made within the unquoted growth portfolio.
As noted in prior years, the composition of the portfolio continues to shift towards one that is predominantly invested in growth investments, particularly unquoted growth investments, in line with current VCT regulations. As illustrated, the unquoted growth investments have notably been growing in size year on year.
As at the end of year, the unquoted growth investments made up 42% (2020: 29%) of the entire portfolio (excluding cash), with quoted growth representing 28% (2020: 28%) and unquoted yield focused making up the remaining 30% (2020: 43%) of the investment portfolio.
As a result of the significant level of new investment activity this year, the proportion of the portfolio in new investments has increased, as illustrated below. This is expected to continue as we make new growth investments going forward and exit from the maturing portfolio.
With the newer investments tending now to be in younger unquoted growth businesses, this does however mean that, as a result, the associated risk level also increases. However, the potential rewards from such investments are also much greater and the success of these investments will in due course deliver future returns for the Company.
Portfolio Performance
The performance of the portfolio over the year has produced an unrealised gain of £7.6 million (2020: losses £20.8 million), with the unquoted portfolio generating an unrealised gain of £1.2 million and the quoted portfolio generating an unrealised gain of £6.4 million.
At the start of the pandemic the Company made provisions against the valuations of many of the portfolio companies to allow for the significant uncertainty created by the impact of the virus and national lockdowns.
Despite the UK remaining in an effective lockdown for the majority of the accounting year and the associated impacts on businesses in the portfolio, the portfolio has recovered some of the losses suffered in the prior year as highlighted above as some investee companies have been able to modify their plans to operate successfully in the challenging conditions.
As demonstrated the quoted portfolio has seen the most significant recovery, with unrealised gains in the portfolio over the year totalling £6.4 million. £719,000 of unrealised gains have also been recorded in the unquoted growth portfolio and £512,000 unrealised gains have been recognised in the unquoted yield focused portfolio due in part to the reduction of provisions suffered in the prior year. Despite these positives, there were still a small number of write downs in the year as some businesses have ultimately been unable to weather the unprecedented storm and have been written down to nil. With many of the unquoted yield focused investments trading within the hospitality sector, the majority have been forced to close or significantly reduce operations throughout the extended lockdown.
Further details on individual movements within the portfolio can be found within the unquoted and quoted manager reports below.
At the year end, approximately 70% of the investment portfolio is valued at or above cost, with the remainder being valued at less than cost. The losses suffered have been heightened by the coronavirus pandemic, however with regards to the newer unquoted growth portfolio of investments, it is not unexpected to suffer some losses at a relatively early stage as the vulnerable businesses tend to become more apparent before the stronger businesses prove themselves.
The largest unrealised gains in the quoted portfolio related to Downing Strategic Micro-Cap Investment Trust plc (£1.6 million), Anpario plc (£1.4 million) and Universe Group plc (£567,000). An analysis of the unrealised gains and losses are detailed further within the report on quoted investments below.
Within the unquoted portfolio, the largest unrealised gain was in respect of one of the newer growth investments, Trinny London Limited (£1.5 million), as well as one of the older yield-focused investments, Downing Care Homes Holdings Limited (£1.4 million). These gains were partially offset by unrealised losses, most notably to Lignia Wood Company Limited (£1.2 million) and Avid Technology Group Limited (£1.0 million), that both form part of the unquoted growth portfolio.
Realised losses (over carrying value brought forward) in the period totalled £195,000, with the most notable contributor being unquoted growth company ADC Biotechnology Limited (loss of £291,000) following its exit at the year end. However, it should be noted that there is also an element of deferred consideration due on the exit from ADC Biotechnology which is contingent on certain events taking place. The most notable gain in the period related to quoted company Inland Homes plc which generated a gain over value of £69,000 following the partial exit during the year.
Further details on these and other movements can be found within the quoted and unquoted Investment Adviser Reports.
Income split
As demonstrated over the past three years income to the Company has gradually decreased as the Company exits more of the older yield focussed investments which loan interest up to the VCT.
As at the 31 March 2021, the Company received income of £1.3 million (2020: £2.2 million). Of this total, the quoted growth dividends have remained relatively consistent over the prior periods, totalling £357,000 at the end of 31 March 2021. The receipts from the yield focussed investments for the year fell to £754,000 (2020: £1.4 million), driven in part by the exit of these investments as noted above, as well as the significant level of provisions required against the outstanding interest balances and their recoverability.
As the portfolio continues to shift away from yield focused investments to more growth investments, we expect the income generation to continue to reduce and replaced by capital generation.
Portfolio Composition
With a significant number of new investments made in the year to 31 March 2021, the diversification of the portfolio continues.
As at the year end, the main sector in which the Company is invested into is the Software and Computer Services sector, following £8.9 million further investment made during the year, with the sector now representing approximately 20% of the investment portfolio. The most notable new investments into this sector were StorageOS Inc (£3.0 million) and Parsable Inc (£1.5 million), with further details on these as well as all new investments noted in the unquoted investment adviser’s report further below.
Exposure to the leisure sector, which includes pub companies, has continued to fall from 10% to 7%, whereas, in addition to the Software and Computer Services sector (noted above), there have also been a large increase to the manufacturing sector, following a significant new investment into Carbice Corporation (£3.0 million) resulting in the sector now making up 4% of the overall portfolio.
At the period end, the Company held £10.7 million in cash, which we expect to deploy into supporting the existing portfolio as well any new investment opportunities that may arise.
Net asset value and results
The net asset value per Share (“NAV”) at 31 March 2021 stood at 58.2p, compared to the NAV at 31 March 2020 of 57.6p. Total Return (NAV plus cumulative dividends paid since the merger in 2013) is 96.95p, compared to the Total Return at 31 March 2020 of 93.1p.
The gain on ordinary activities after taxation for the year was £6.2 million (2020: loss of £23.8 million), comprising a revenue loss of £616,000 (2020: £2.1 million) and a capital gain of £6.8 million (2020: loss of £21.7 million).
Outlook
The year to 31 March 2021 has been one of the most challenging periods for the Company, with several portfolio companies suffering the effects of the coronavirus pandemic.
However, it is promising to see a portion of the unrealised investment losses previously incurred now recovering following decisive action from the portfolio companies, in order to position themselves more robustly for any further impact.
There have however been further setbacks in a small number of the portfolio companies that have proved vulnerable to the pandemic, although following the recent significant number of new investments made, we believe there shall be good prospects in the portfolio that can continue to drive improved performance.
Downing LLP
Investment Adviser’s Report – Unquoted Portfolio
We present a review of the unquoted investment portfolio for the year ended 31 March 2021.
At 31 March 2021, the unquoted portfolio of 66 investments was valued at £64.6 million. 40 of these with a value of £37.5 million are unquoted growth companies and 26 are unquoted yield focused companies with a value of £27.1m.
Unquoted Growth
Investment activity
During the period, the Company has completed the highest rate of investment over one financial year under the current VCT regulations and has invested a total of £19.9 million in unquoted growth companies, comprising 12 new opportunities and nine follow-on investments.
The 12 new investments were as follows: -
Carbice Corporation (£3.0 million) is a nanotechnology company developing technologies to dissipate heat from electronic devices such as phones and satellites that improve performance and safety.
StorageOS Inc (£3.0 million) is an emerging leader in cloud native storage management. Its patent protected software allows its customer to take advantage of the cloud from the beginning of the software development lifecycle.
Cornelis Networks Inc (£2.1 million) a spin out from Intel Corporation provides purpose-built interconnects focused on high-performance computing, data analytics and artificial intelligence. The Company’s technology allows the processing of huge volume of calculations at high speed.
Parsable Inc (£1.5 million) is a leading provider of software to manufacturing industries. Its Connected Worker platform helps improve safety, quality and productivity by connecting and empowering frontline workers to optimise processes and execute work more quickly, reducing waste and improving safety.
Glisser Limited (£1.3 million) is an award-winning event hosting platform for virtual and in-person events. The Company’s software extends event attendance and engagement through the combination of on-line and physical events.
Ayar Labs Inc (£1.3 million) has developed components for high performance computing and data centre applications to deliver better bandwidth, better power, and better latency
Maestro Media Limited (£1.0 million) has developed an online streaming platform in collaboration with the BBC, that offers consumers personal and insightful lessons from leading creative talents such as David Walliams, Gary Barlow and Malorie Blackman.
Genincode UK Limited (£600,000) uses Artificial Intelligence to combine genetic and clinical data to risk assess patients and provide healthcare practitioners with clinical information to evaluate and predict the onset of cardiovascular disease.
Vivacity Labs Limited (£500,000) provides Artificial Intelligence enabled sensors to monitor and control traffic flows thereby reducing journey times, congestion and pollution.
Trinny London Limited (£443,000) is an e-commerce-based premium beauty and cosmetics brand launched by Trinny Woodall.
Cambridge Respiratory Innovations Limited (£250,000) has developed a patent-protected ultra-high sensitivity handheld capnometer to provide actionable insights at the point of care for the diagnosis, monitoring and management of cardiorespiratory conditions.
MIP Diagnostics Limited (£150,000) is a manufacturer of polymer based synthetic antibodies that provide a viable alternative to antibodies for diagnostic immunoassays which are used across a variety of sectors including diagnostics, sensors, food testing and reagent purification.
Follow on investments totalling £4.7 million were made into nine companies, most notably Hummingbird Technologies Limited (£1.75 million), Empiribox Limited (£935,000) and FundingXchange Limited (£525,000).
Details of the investment realisations during the year are set out below. Total proceeds of £1.7 million were generated from unquoted growth companies, producing a loss over holding value of £236,000.
The largest realisation in the period related to BridgeU Corporation, an educational technology business, that was sold during the period, generating proceeds of £462,000, resulting in a gain over holding value of £48,000.
Empiribox Limited is the provider of equipment and training to primary schools across the UK. During the year the existing convertible loan note was converted into further qualifying equity, resulting in a loss over cost of £325,000.
Portfolio valuation
The unquoted growth portfolio faced a difficult 12 months for relatively young companies as a result of the unparalleled coronavirus pandemic. However, as a result of management actions and continued support from the investment adviser the performance overall for the year was positive, with an uplift in value of £719,000. The most significant movements are noted below:
Trinny London Limited, the e-commerce-based beauty and cosmetics brand, has been uplifted by £1.5 million at the period end as a result of the company performing ahead of budget.
E-Fundamentals (Group) Limited, a Software as a Service (SaaS) analytics company, was uplifted in value by £1.1 million following strong revenue growth in both the UK and US markets.
Virtual Class Limited, trading as Third Space Learning, has been increased in value by £1.0 million reflecting recent improvements in financial performance driven by increased demand for remote teaching solutions.
Imagen Limited, the developer of a cloud-based enterprise video platform, continues to have a strong revenue pipeline and has performed ahead of budget. As a result, the value has been uplifted by £828,000 at the year end.
Xupes Limited, an online retailer of pre-owned luxury goods including designer watches and handbags was previously written down to nil following uncertainty over its future. However, a sales process is currently underway, and the value has been uplifted in line with expected exit proceeds.
As noted above, there were some setbacks to a small number of the more vulnerable businesses within the portfolio, which has offset the unrealised gains recognised at the period end.
Lignia Wood Company, a producer of modified sustainable wood, which is amongst other applications used in yacht building, suffered the largest write down in the period. Since the start of the pandemic, Lignia suffered a significant reduction in demand. We are now unlikely to support a further investment in the company and it may ultimately fail. As a result, the company has been written down in full to nil, which has resulted in an unrealised loss of £1.2 million this year.
Avid Technology Group Limited, a manufacturer of electrified ancillary equipment for internal combustion engines, has suffered significant delays to a planned sale of the company due to economic uncertainty, and therefore has been written down by £1.0 million to nil.
Unquoted Yield Focused
Investment activity
During the period, the Company made no new investments into this portfolio, however it generated total proceeds of £444,000 from disposals, producing a disappointing loss of £1.2 million over cost. Details of the realisations in the year are set out below.
The largest realisation related to Pearce and Saunders Limited, a freehold pub business who redeemed part of their loan notes during the period, receiving proceeds of £440,000.
Quadrate Spa Limited, which owns and operates a health club in The Cube complex in Birmingham has sold the non-qualifying element of its investment which was previously written down to nil following the collapse of a planned sale and leaseback transaction. This has resulted in a loss over cost of £1.5 million.
Portfolio valuation
The unquoted yield focused portfolio experienced a mixed year with the overall unrealised movement producing an unrealised gain of £512,000. The most significant movements are as follows:
Downing Care Homes Holdings Limited, which owns four specialist care homes, generated the largest unrealised gain over the period of £1.4 million. This was largely due to the effective control of the virus, so that there was only a limited impact on staff and residents. As a consequence, a provision against the valuation of the group (taken in March 2020) was released resulting in the increase in value.
The next largest unrealised gain in the period related to Kimbolton Lodge Limited, the care home in Bedford which was valued up by £151,000 in the year on the back of stronger than expected trading.
Despite these positives in the portfolio, some of the investee companies were unable to avoid the disruptive effects caused by the coronavirus pandemic.
Pearce and Saunders Limited, a freehold pub business has suffered the largest setback in the yield focussed portfolio. As a result of the ongoing pandemic and the prolonged lockdown restrictions imposed on the hospitality sector in the UK, the investment has been written down by £729,000 to reflect the closure of the site for the majority of the period as well as the anticipated impact on future revenue and profits.
Indigo Generation Limited and Ironhide Generation Limited are both developing solar farms on adjacent land in India. As at the year-end both companies have been written down in full by £291,000 each. The principal factor for the decrease is due to the reduction in the current and future prices that are anticipated to be achieved from the sale of electricity produced by the sites. The Adviser continues to support the companies, however given prevailing energy prices there is no material prospect of any recovery in the value of the equity.
Conclusion and outlook
The year to 31 March 2021 has been one of the most difficult following the extraordinary situation experienced throughout the world which has severely impacted the UK and Worldwide economies.
In spite of this we have seen businesses in the portfolio quickly adapt to move forward as well as seeing a number of new opportunities arise which has led to a significant level of additions in the year. We feel that the unquoted portfolio is well diversified and take encouragement with the unrealised gains recognised at the year end and the recovery of some of the losses suffered in the prior year.
We continue to remain optimistic that the underlying businesses within the portfolio can improve performance and shall continue to assist management teams along their journey.
Downing LLP
Investment Adviser’s Report - Quoted Growth Portfolio
Investment activity
At 31 March 2021 the quoted portfolio was valued at £24.6 million comprising 32 active investments.
The financial year to 31 March 2021 was a very challenging period. The impact of the Covid-19 pandemic wreaked havoc globally, with markets in March 2020 crashing to their lowest levels since the Global Financial Crisis. Against a very difficult backdrop, it is encouraging to report that the quoted portfolio made positive progress in the six months from the halfway point of the accounting year. Of the 32 listed holdings, all made gains other than three which returned minor losses.
The quoted portfolio saw some change during the period, with new investments made into five qualifying securities. The Company made purchases in Deepmatter Group Plc, Feedback Plc, Oncimmune Holdings Plc, One Media IP Group and Pelatro Plc were added to the quoted portfolio. There were partial sales in Angle Plc, Vianet Group Plc and the Downing UK Micro-Cap Growth Fund as the fund was wound down. There were full exits made in Inland Homes Plc and Science in Sport Plc.
Overall, the quoted portfolio produced unrealised gains of £6.4 million. The most notable movements in the portfolio over the period are discussed below.
Portfolio Movements
The main positive contributor to performance was the Downing Strategic Micro-Cap Investment Trust (DSM), which increased the value of the portfolio by £1.6 million. In its results for the year ended 28 February 2021 the board highlighted that the Company is a focused portfolio of actively managed investments with clear catalysts in place, with the majority of the holdings now all in either late stage turnaround or growth phase. During the period, the NAV increased by 26% and there was a 22% increase in the share price. The board reported that the portfolio is at 43% discount to the manager’s base case intrinsic value and a return of positive sentiment to UK small company value could further enhance this. The investee companies are all well financed and should benefit from the end of lockdown and a return to more normalised trading conditions. Importantly, post its reporting period end, there was a significant return of capital, interest, and redemption premium, reducing the exposure to the turnaround of Real Good Food Plc (subject to shareholder approval by Real Good Food plc).
The Managers are focused, alongside strong management teams, on the catalysts in the portfolio which has now matured into a collection of well-run and relevant businesses. The sentiment towards value is improving, and there is now more of a focus on UK small cap which has been out of favour with investors for many years. There is a strong work in progress list of potential new investments which will be executed in the short term.
Anpario Plc is an independent manufacturer of natural sustainable animal feed additives for animal health, nutrition and biosecurity. The group is the second largest holding in the quoted portfolio and contributed £1.5 million of unrealised gains in the period. The group announced its full year results for the twelve months to 31 December 2020, and highlighted a 5% increase in revenue, a 9% increase in gross profit, and 22% increase in profit before tax. Operationally, there was strong performance helped by quick implementation of Covid-19 response plans. This was alongside growth in sales growth in the Americas, Europe, and China, particularly through the company's own subsidiaries. The board reported that these results reflect the group's best operating performance to date, notwithstanding that 2020 was an extremely challenging year. The resilience of Anpario’s systems and operating procedures have meant that the company was able to operate as near normal as possible, ensuring customers did not experience disruption in supply. The current financial year has started well, building on momentum from 2020. The global sales team is supporting customers and the group is continuing online customer meetings, technical training and business development effectively.
Universe Group Plc, a developer and supplier of retail management solutions, payment, and loyalty systems, also made a positive contribution to the portfolio, delivering an unrealised gain of £567,000. In its results for the year ended 31 December 2020, the group reported that while total revenues decreased compared to the same period the year prior, this decrease reflected the Covid-19 down-turn in customer fuel retailing activities, with recovery expected in 2021. The board stated that as 2020 unfolded, Universe took all the necessary steps to sustain its customers, employees and operations, in what was a very unpredictable environment.
It closed the year with a business which, by delivering commendable financial results, has proven its value to the marketplace in the toughest of times. The group won new, multi-year contracts with key payment clients and was awarded a major contract extension for a loyalty customer. There was a delay in the rollout of a payments project for a substantial grocery customer and the slowdown of some early-stage engagement in its latest generation of retail management solutions. However, the board believes this slowdown will reverse as the UK recovers from the pandemic restrictions and convenience retailers regain their management bandwidth to install more advanced, insightful software that the group’s latest offerings provide.
There were three small losses in the portfolio in the period. Pelatro Plc was a negative contributor, reducing the value of the portfolio by £59,000. Pelatro, a precision marketing software specialist, announced its results for the year ended 31 December 2020. Financial highlights included a reduction in revenue to $4.02 million (2019: $6.67 million) as result of switch of focus to recurring revenue, which increased to 71% of revenue (2019: 44%). An equity placing raised $2.6 million to invest in the business. It has a strong balance sheet with gross cash as at 31 December 2020 $1.81 million, up from $1.10 million in 2019. Despite the challenges ahead, the board is positive in its outlook, citing its substantial order book and current contracted revenue visibility for FY21 of $6.0 million, of which $5.2 million is recurring. The board believes that the company ended 2020 in a much stronger position, with a substantial order book and good visibility over revenues for the coming year. The start of the second phase of its journey into the mobile advertising space is particularly exciting as an area complementary to its existing operations. It is confident in meeting customers' requirements, growing the business and meeting financial expectations for the year. Post reporting period end, the group announced new contract wins which will further help visibility for 2021.
Pittards Plc was also negative contributor, reducing the value of the portfolio by £11,000. Pittards is a specialist producer of technically advanced leather and luxury leather goods for retailers, manufacturers, and distributors. The group announced its results for the year ended 31 December 2020 and reported that while revenues were down for the full year, there had been a marked improvement in the second half.
The board reported that the group entered 2021 stronger, with a more diverse and flexible business, ready to take full advantage of opportunities in its markets. It remains too early to judge how strong the recovery will be, but on balance, management see more reason to be positive that it can make further progress to build on the momentum of the second half of last year, starting the year with stronger demand from customers.
Outlook
Despite the challenges and disruption caused by the pandemic, the Adviser is encouraged by the progress achieved by the quoted portfolio, particularly over the last six months of the reporting period. Improved sentiment towards UK assets following the resolution of Brexit and the successful vaccine rollout should provide a tailwind going forward. The Adviser has engaged with management teams throughout the last year and is impressed with the measures adopted to weather the crisis and survive post-pandemic. Many are now leaner, fitted and better positioned to develop and grow. Although the long term consequences of Covid-19 are still unknown and undoubtably there will be further challenges ahead, the Adviser remains cautiously optimistic that the quoted portfolio contains a diversified range of quality companies with strong balance sheets that will deliver long-term, sustained growth in shareholder value.
Downing LLP
Review of Investments
Portfolio of investments
The following investments, all of which are incorporated in England and Wales, were held at 31 March 2021:
Cost | Valuation | Valuation movement in year | % of portfolio by value | Total value of other funds also managed by Downing LLP (1) | |||
| £’000 | £’000 | £’000 | £’000 | ||||
| Quoted growth investments | |||||||
| Tracsis plc* | 1,443 | 4,932 | 424 | 4.9% | 3,790 | ||
| Downing Strategic Micro-Cap Investment Trust plc*** | 5,197 | 3,816 | 1,590 | 3.8% | 3,672 | ||
| Anpario plc* | 1,448 | 3,402 | 1,484 | 3.4% | 2,725 | ||
| Impact Healthcare REIT plc*** | 1,518 | 1,631 | 329 | 1.6% | 1,136 | ||
| Craneware plc* | 353 | 1,573 | 182 | 1.6% | 901 | ||
| Inland Homes plc* | 1,311 | 1,468 | 367 | 1.5% | 2,262 | ||
| Universe Group plc* | 1,506 | 1,276 | 567 | 1.3% | 706 | ||
| Cohort plc* | 394 | 1,148 | 283 | 1.1% | - | ||
| Vianet Group plc* | 756 | 693 | 126 | 0.7% | - | ||
| Angle plc* | 570 | 627 | 243 | 0.6% | - | ||
| Immotion Group plc* | 500 | 607 | 330 | 0.6% | - | ||
| Pittards plc* | 1,350 | 495 | (11) | 0.5% | 299 | ||
| Deepmatter Group plc* | 350 | 467 | 117 | 0.5% | - | ||
| Brooks Macdonald Group plc* | 257 | 362 | 111 | 0.4% | 1,676 | ||
| Feedback plc* | 250 | 300 | 50 | 0.3% | - | ||
| Oncimmune Holdings plc* | 278 | 299 | 20 | 0.3% | - | ||
| SysGroup plc* | 377 | 238 | 69 | 0.2% | 950 | ||
| Pelatro plc* | 290 | 231 | (59) | 0.2% | - | ||
| Pennant International Group plc* | 335 | 188 | 23 | 0.2% | - | ||
| One Media Group IP plc* | 175 | 175 | - | 0.2% | - | ||
| Frontier IP Group plc* | 30 | 162 | 25 | 0.2% | - | ||
| Norman Broadbent plc* | 906 | 151 | - | 0.1% | 542 | ||
| Bonhill Group plc* | 1,000 | 150 | 75 | 0.1% | 1,238 | ||
| Dillistone Group plc* | 411 | 74 | 14 | 0.1% | - | ||
| Pressure Technologies plc* | 249 | 58 | - | 0.1% | - | ||
| Fireangel Safety Technology Group plc* | 545 | 49 | 6 | 0.0% | 3,118 | ||
| MI Downing UK Micro-Cap Growth Fund*** | 7 | 6 | 1 | 0.0% | 477 | ||
| Wheelsure Holdings plc** | 48 | 4 | 4 | 0.0% | - | ||
| AIQ Limited | - | 2 | (4) | 0.0% | - | ||
| Golden Rock Global plc*** | - | 1 | - | 0.0% | - | ||
| Flowgroup plc* | 207 | - | - | 0.0% | - | ||
| ACHP plc* | 61 | - | - | 0.0% | - | ||
| 22,122 | 24,585 | 6,366 | 24.5% | 23,492 | |||
| Unquoted growth investments | |||||||
| Carbice Corporation | 3,020 | 2,830 | (190) | 2.8% | 1,564 | ||
| StorageOS Inc | 2,970 | 2,787 | (183) | 2.8% | 1,226 | ||
| E-Fundamentals (Group) Limited | 1,342 | 2,408 | 1,067 | 2.4% | 3,353 | ||
| Hummingbird Technologies Limited | 2,250 | 2,253 | 85 | 2.3% | 2,164 | ||
| Virtual Class Limited | 1,164 | 1,974 | 1,042 | 2.0% | 2,711 | ||
| Cornelis Networks Inc | 2,102 | 1,961 | (141) | 2.0% | 2,397 | ||
| Trinny London Limited | 443 | 1,935 | 1,492 | 1.9% | 11,109 | ||
| Imagen Limited | 1,000 | 1,828 | 828 | 1.8% | 3,657 | ||
| Rated People Limited | 1,282 | 1,584 | 301 | 1.6% | 3,484 | ||
| StreetHub Limited | 1,366 | 1,431 | 14 | 1.4% | 4,283 | ||
| Parsable Inc | 1,532 | 1,357 | (175) | 1.3% | 1,912 | ||
| Glisser Limited | 1,300 | 1,300 | - | 1.3% | 3,838 | ||
| Ayar Labs Inc | 1,280 | 1,235 | (45) | 1.2% | 1,671 | ||
| Curo Compensation Limited | 1,663 | 1,095 | (47) | 1.1% | 167 | ||
| FundingXchange Limited | 1,050 | 1,050 | - | 1.1% | 2,450 | ||
| Firefly Learning Limited | 1,047 | 1,047 | - | 1.0% | 2,271 | ||
| Ecstase Limited | 1,000 | 1,000 | - | 1.0% | 2,081 | ||
| Maestro Media Limited | 1,000 | 1,000 | - | 1.0% | 3,057 | ||
| Limitless Technology Limited | 757 | 920 | 118 | 0.9% | 2,897 | ||
| Hackajob Limited | 784 | 784 | - | 0.8% | 784 | ||
| Masters of Pie Limited | 667 | 667 | - | 0.7% | 2,304 | ||
| Empiribox Holdings Limited | 1,813 | 607 | (327) | 0.6% | 422 | ||
| Genincode UK Limited | 600 | 600 | - | 0.6% | 900 | ||
| JRNI Limited | 525 | 525 | - | 0.5% | 2,815 | ||
| Vivacity Labs Limited | 500 | 500 | - | 0.5% | 1,786 | ||
| Xupes Limited | 2,250 | 459 | 459 | 0.5% | 291 | ||
| Lineten Limited | 750 | 392 | (358) | 0.4% | 392 | ||
| Exonar Limited | 550 | 379 | (171) | 0.4% | 743 | ||
| Cambridge Touch Technologies Limited | 459 | 361 | - | 0.4% | 1,749 | ||
| Channel Mum Limited | 675 | 278 | (197) | 0.3% | 278 | ||
| FVRVS Limited | 250 | 250 | - | 0.3% | 1,814 | ||
| Cambridge Respiratory Innovations Limited | 250 | 250 | - | 0.3% | 1,042 | ||
| Upp Technologies Group Limited | 1,077 | 242 | (566) | 0.2% | 242 | ||
| MIP Diagnostics Limited | 150 | 150 | - | 0.2% | 717 | ||
| Ludorum plc | 177 | 7 | - | 0.0% | - | ||
| Avid Technology Group Limited | 1,833 | - | (1,037) | 0.0% | - | ||
| Lignia Wood Company Limited | 1,778 | - | (1,250) | 0.0% | - | ||
| Glownet Limited | 741 | - | - | 0.0% | - | ||
| Live Better With Limited | 990 | - | - | 0.0% | - | ||
| Resource Reserve Recovery Limited | 6 | - | - | 0.0% | - | ||
| 44,393 | 37,446 | 719 | 37.6% | 72,571 | |||
| Unquoted yield focused investments | |||||||
| Doneloans Limited | 5,000 | 5,717 | 227 | 5.7% | - | ||
| Downing Care Homes Holdings Limited | 3,880 | 5,526 | 1,409 | 5.5% | - | ||
| Baron House Developments LLP | 2,695 | 3,234 | - | 3.2% | 2,466 | ||
| Harrogate Street LLP | 1,400 | 2,057 | - | 2.1% | - | ||
| Pilgrim Trading Limited | 2,594 | 2,054 | (67) | 2.1% | 1,381 | ||
| Cadbury House Holdings Limited | 3,081 | 1,801 | 52 | 1.8% | 791 | ||
| Data Centre Response Limited | 557 | 1,316 | 8 | 1.3% | - | ||
| Nomansland Biogas Limited | 1,300 | 1,300 | - | 1.3% | 901 | ||
| Kimbolton Lodge Limited | 664 | 966 | 151 | 1.0% | - | ||
| Fenkle Street LLP | 346 | 872 | (28) | 0.9% | 1,730 | ||
| Downing Pub EIS ONE Limited | 490 | 568 | 20 | 0.6% | 6,622 | ||
| Fresh Green Power Limited | 378 | 564 | 102 | 0.6% | 842 | ||
| Pearce & Saunders Limited | 1,210 | 338 | (729) | 0.3% | 430 | ||
| SF Renewables (Solar) Limited | 422 | 318 | (23) | 0.3% | 5,113 | ||
| Rockhopper Renewables Limited | 738 | 278 | (54) | 0.3% | 1,436 | ||
| Green Energy Production UK Limited | 200 | 133 | 26 | 0.1% | 200 | ||
| Pearce & Saunders DevCo Limited | 84 | 84 | - | 0.1% | 106 | ||
| Yamuna Renewables Limited | 2,500 | - | - | 0.0% | - | ||
| Jito Trading Limited | 2,500 | - | - | 0.0% | - | ||
| Quadrate Catering Limited | 1,500 | - | - | 0.0% | - | ||
| Indigo Generation Limited | 920 | - | (291) | 0.0% | - | ||
| Ironhide Generation Limited | 920 | - | (291) | 0.0% | - | ||
| Top Ten Holdings plc | 399 | - | - | 0.0% | - | ||
| Quadrate Spa Limited | 372 | - | - | 0.0% | - | ||
| The Thames Club Limited | 175 | - | - | 0.0% | - | ||
| London City Shopping Centre Limited | 110 | - | - | 0.0% | - | ||
| 34,435 | 27,126 | 512 | 27.2% | 22,018 | |||
| Total investments | 100,950 | 89,157 | 7,597 | 89.3% | 118,081 | ||
| Cash at bank and in hand | 10,738 | 10.7% | |||||
| 99,895 | 100.0% | ||||||
The Company also holds investments in Golden Rock Global plc and Mining, Minerals & Metals plc (which does not show in the previous table). These investments were acquired in prior periods at negligible value as a result of reorganisations of other investments and continued to be valued at the same level.
All venture capital investments are unquoted unless otherwise stated.
* Quoted on AIM
** Quoted on the Aquis Stock Exchange Growth Market
*** Quoted on the Main Market of the London Stock Exchange
(1) Other self-managed and discretionary managed funds also managed by Downing LLP as Investment Manager or Adviser (excluding Downing ONE VCT plc) as at 31 March 2021:
- Downing TWO VCT plc
- Downing THREE VCT plc
- Downing FOUR VCT plc
- MI Downing UK Micro-Cap Growth Fund
- MI Downing Monthly Income Fund
- Downing Strategic Micro-Cap Investment Trust plc
- Downing AIM Estate Planning Service and Downing AIM NISA
- VT Downing Unique Opportunities Fund
- Downing Renewables EIS
- Downing Indian Solar EIS
- Downing Ventures EIS
- Downing Pub EIS
- Downing EIS
Investment movements for the year ended 31 March 2021
Additions
| £’000 | |
| Quoted growth investments | |
| Deepmatter Group plc | 350 |
| Pelatro plc | 290 |
| Oncimmune Holdings plc | 278 |
| Feedback plc | 250 |
| Immotion Group plc | 200 |
| One Media Group IP plc | 175 |
| 1,543 | |
| Unquoted growth investments | |
| Carbice Corporation | 3,020 |
| StorageOS Inc | 2,970 |
| Cornelis Networks Inc | 2,102 |
| Hummingbird Technologies Limited | 1,750 |
| Parsable Inc | 1,532 |
| Glisser Limited | 1,300 |
| Ayar Labs Inc | 1,280 |
| Maestro Media Limited | 1,000 |
| Empiribox Holdings Limited | 935 |
| Genincode UK Limited | 600 |
| FundingXchange Limited | 525 |
| Vivacity Labs Limited | 500 |
| Channel Mum Limited | 475 |
| Trinny London Limited | 443 |
| StreetHub Limited | 316 |
| Virtual Class Limited | 250 |
| Cambridge Respiratory Innovations Limited | 250 |
| Curo Compensation Limited | 245 |
| ADC Biotechnology Limited | 167 |
| MIP Diagnostics Limited | 150 |
| Exonar Limited | 50 |
| 19,860 | |
| 21,403 |
Disposals
| Profit/ | Realised | ||||
| Value at | (loss) vs | gain/ | |||
| Cost | 01/04/20* | Proceeds | cost | (loss) | |
| £’000 | £’000 | £’000 | £’000 | £’000 | |
| Quoted growth investments | |||||
| Inland Homes plc | 216 | 181 | 250 | 34 | 69 |
| Angle plc | 108 | 82 | 103 | (5) | 21 |
| MI Downing UK Micro-Cap Growth Fund | 43 | 24 | 32 | (11) | 8 |
| Redhall Group plc | 500 | - | - | (500) | - |
| Flowgroup plc | 178 | - | - | (178) | - |
| Vianet plc | 196 | 166 | 139 | (57) | (27) |
| Science in Sport plc | 1,239 | 611 | 581 | (658) | (30) |
| 2,480 | 1,064 | 1,105 | (1,375) | 41 | |
| Unquoted growth investments (including loan note redemptions) | |||||
| BridgeU Corporation | 810 | 414 | 462 | (348) | 48 |
| FCT No.1 Limited | 228 | 298 | 305 | 77 | 7 |
| Empiribox Holdings Limited | 650 | 325 | 325 | (325) | - |
| Channel Mum Limited | 300 | 300 | 300 | - | - |
| ADC Biotechnology Limited | 588 | 588 | 297 | (291) | (291) |
| 2,576 | 1,925 | 1,689 | (887) | (236) | |
| Unquoted yield focused investments (including loan note redemptions) | |||||
| Pearce & Saunders Limited | 110 | 440 | 440 | 330 | - |
| Pearce & Saunders DevCo Limited | 4 | 4 | 4 | - | - |
| Quadrate Spa Limited | 1,500 | - | - | (1,500) | - |
| 1,614 | 444 | 444 | (1,170) | - | |
| 6,670 | 3,433 | 3,238 | (3,432) | (195) | |
* Adjusted for purchases in the year where applicable
Directors’ responsibilities statement
The Directors are responsible for preparing the Strategic Report, the Report of the Directors, the Directors’ Remuneration Report, the separate Corporate Governance Statement and the financial statements in accordance with applicable law and regulations. They are also responsible for ensuring that the annual report includes information required by the Listing Rules of the Financial Conduct Authority.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), including Financial Reporting Standard 102, the financial reporting standard applicable in the UK and Republic of Ireland (FRS 102). Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgments and accounting estimates that are reasonable and prudent;
- state whether the financial statements have been prepared in accordance with applicable UK Accounting Standards, subject to any material departures disclosed and explained in the financial statements;
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and
- prepare a Directors’ Report, Strategic Report and Directors’ Remuneration Report which comply with the requirements of the Companies Act 2006.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions, and to disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
In addition, each of the Directors considers that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary to assess the Company’s position, performance, business model and strategy.
Income Statement for the year ended 31 March 2021
| Year ended 31 March 2021 | Year ended 31 March 2020 | |||||||
| Revenue | Capital | Total | Revenue | Capital | Total | |||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |||
| Income | 1,333 | - | 1,333 | 2,118 | 100 | 2,218 | ||
| Gains/(losses) on investments | - | 7,402 | 7,402 | - | (21,094) | (21,094) | ||
| 1,333 | 7,402 | 8,735 | 2,118 | (20,994) | (18,876) | |||
| Investment management fees | (817) | (817) | (1,634) | (970) | (970) | (1,940) | ||
| Other expenses | (900) | - | (900) | (3,000) | - | (3,000) | ||
| Return/(loss) on ordinary activities before tax | (384) | 6,585 | 6,201 | (1,852) | (21,964) | (23,816) | ||
| Tax on total comprehensive income and ordinary activities | (232) | 232 | - | (257) | 257 | - | ||
| Return/(loss) attributable to equity shareholders | (616) | 6,817 | 6,201 | (2,109) | (21,707) | (23,816) | ||
| Basic and diluted return/(loss) per share | (0.4) | 4.4 | 4.0 | (1.6) | (16.1) | (17.7) | ||
The total column within the Income Statement represents the Statement of Total Comprehensive Income of the Company prepared in accordance with Financial Reporting Standards (“FRS 102”). There are no other items of comprehensive income. The supplementary revenue and capital return columns are prepared in accordance with the Statement of Recommended Practice issued in November 2014 and updated in October 2019 by the Association of Investment Companies (“AIC SORP”).
Statement of Changes in Equity for the year ended 31 March 2021
| Called up Share Capital | Capital redemption reserve | Share premium account | Funds held in respect of shares not yet allotted | Special reserve | Capital reserve realised | Revaluation reserve | Revenue reserve | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| For the year ended 31 March 2020 | |||||||||
| At 1 April 2019 | 1,334 | 1,597 | 45,515 | 114 | 52,526 | - | 1,343 | 2,121 | 104,550 |
| Total comprehensive income | - | - | - | - | - | (917) | (20,790) | (2,109) | (23,816) |
| Realisation of revaluations from previous years* | - | - | - | - | - | 2,488 | (2,488) | - | - |
| Realisation of impaired valuations | - | - | - | - | - | (13,431) | 13,431 | - | - |
| Transfer between reserves* | - | - | - | - | (16,499) | 16,499 | - | - | - |
| Transactions with owners | |||||||||
| Dividends paid | - | - | - | - | - | (4,639) | - | (886) | (5,525) |
| Utilised in share issue | - | - | - | (114) | - | - | - | - | (114) |
| Unallotted shares | - | - | - | 5,775 | - | - | - | - | 5,775 |
| Issue of new shares | 124 | - | 9,188 | - | - | - | - | - | 9,312 |
| Share issue costs | - | - | - | - | (151) | - | - | - | (151) |
| Purchase of own shares** | (18) | 18 | - | - | (1,289) | - | - | - | (1,289) |
| At 31 March 2020 | 1,440 | 1,615 | 54,703 | 5,775 | 34,587 | - | (8,504) | (874) | 88,742 |
| For the year ended 31 March 2021 | |||||||||
| At 1 April 2020 | 1,440 | 1,615 | 54,703 | 5,775 | 34,587 | - | (8,504) | (874) | 88,742 |
| Total comprehensive income | - | - | - | - | - | (780) | 7,597 | (616) | 6,201 |
| Realisation of revaluations from previous years* | - | - | - | - | - | (1,735) | 1,735 | - | - |
| Realisation of impaired valuations | - | - | - | - | - | (5,581) | 5,581 | - | - |
| Transfer between reserves* | - | - | - | - | (12,197) | 12,197 | - | - | - |
| Transactions with owners | |||||||||
| Dividends paid | - | - | - | - | - | (4,101) | - | (1,039) | (5,140) |
| Utilised in share issue | - | - | - | (5,775) | - | - | - | - | (5,775) |
| Unallotted shares | - | - | - | 7,545 | - | - | - | - | 7,545 |
| Issue of new shares | 205 | - | 11,727 | - | - | - | - | - | 11,932 |
| Share issue costs | - | - | - | - | (286) | - | - | - | (286) |
| Purchase of own shares** | (34) | 34 | - | - | (1,866) | - | - | - | (1,866) |
| At 31 March 2021 | 1,611 | 1,649 | 66,430 | 7,545 | 20,238 | - | 6,409 | (2,529) | 101,353 |
* A transfer of £1,735,000 representing previously recognised unrealised losses on disposal of investments during the year ended 31 March 2021 (2020: gains £2,488,000) has been made from the Revaluation reserve to the Capital Reserve-realised. A transfer of £12.2 million representing realised gains on disposal of investments, less net investment impairments and the excess of capital expenses over capital income and capital dividends in the year (2020: £16.5 million) has been made from the Special reserve to the Capital Reserve – realised.
** These shares were subsequently cancelled.
Balance Sheet
as at 31 March 2021
| 2021 | 2020 | ||||
| £’000 | £’000 | ||||
| Fixed assets | |||||
| Investments | 89,157 | 63,590 | |||
| Current assets | |||||
| Debtors | 2,001 | 1,944 | |||
| Cash at bank and in hand | 10,738 | 23,471 | |||
| 12,739 | 25,415 | ||||
| Creditors: amounts falling due within one year | (543) | (263) | |||
| Net current assets | 12,196 | 25,152 | |||
| Net assets | 101,353 | 88,742 | |||
| Capital and reserves | |||||
| Called up share capital | 1,611 | 1,440 | |||
| Capital redemption reserve | 1,649 | 1,615 | |||
| Share premium account | 66,430 | 54,703 | |||
| Funds held in respect of shares not yet allotted | 7,545 | 5,775 | |||
| Special reserve | 20,238 | 34,587 | |||
| Revaluation reserve | 6,409 | (8,504) | |||
| Revenue reserve | (2,529) | (874) | |||
| Total equity shareholders’ funds | 101,353 | 88,742 | |||
| Basic and diluted net asset value per share | 58.2p | 57.6p |
The financial statements were approved and authorised for issue by the Board of Directors on 24 June 2021 and were signed on its behalf by:
Chris Kay
Chairman
Company number: 3150868
Cash Flow Statement for the year ended 31 March 2021
| 2021 | 2020 | |||
| £’000 | £’000 | |||
| Cash flow from operating activities | ||||
| Gain/(loss) on ordinary activities after taxation | 6,201 | (23,816) | ||
| (Gain)/loss on investments | (7,402) | 21,094 | ||
| (Increase)/decrease in debtors | (57) | 1,284 | ||
| Increase/(decrease) in creditors | 25 | (28) | ||
| Net cash generated from operating activities | (1,233) | (1,466) | ||
| Cash flow from investing activities | ||||
| Purchase of investments | (21,403) | (11,197) | ||
| Proceeds from disposal of investments | 3,238 | 10,997 | ||
| Net cash (outflow) from investing activities | (18,165) | (200) | ||
| Cash flows from financing activities | ||||
| Proceeds from share issue | 11,933 | 9,312 | ||
| Funds held in respect of shares not yet allotted | 1,770 | 5,661 | ||
| Share issue costs | (286) | (151) | ||
| Purchase of own shares | (1,612) | (1,382) | ||
| Equity dividends paid | (5,140) | (5,525) | ||
| Net cash inflow from financing activities | 6,665 | 7,915 | ||
| (Decrease)/increase in cash | (12,733) | 6,249 | ||
| Net movement in cash | ||||
| Beginning of year | 23,471 | 17,222 | ||
| Net cash (outflow)/inflow | (12,733) | 6,249 | ||
| End of year | 10,738 | 23,471 |
Notes to the Accounts for the year ended 31 March 2021
1. General information
Downing ONE VCT plc (“the Company”) is a venture capital trust established under the legislation introduced in the Finance Act 1995 and is domiciled in the United Kingdom and incorporated in England and Wales, and its registered office is St. Magnus House, 3 Lower Thames Street, London EC3R 6HD.
2. Accounting policies
Basis of accounting
The Company has prepared its financial statements in accordance with the Financial Reporting Standard 102 (“FRS 102”) and in accordance with the Statement of Recommended Practice “Financial Statements of Investment Trust Companies” issued November 2014 and updated in October 2019 (“SORP”).
The financial statements are presented in Sterling (£) and rounded to thousands.
Going concern
After reviewing the Company’s forecasts and projections, the Directors have a reasonable expectation that the major cash outflows of the Company (most notably investments, share buybacks and dividends) are within the Company’s control and therefore the Company has sufficient cash to meet its expenses and liabilities when they fall due. The impact of COVID-19 has been considered. More detail on these considerations can be found within the Corporate Governance report. As such, the Board confirms that the Company has adequate resources to continues in operational existence for at least 12 months from the date of approval of the financial statements. The Company therefore continues to adopt the going concern basis in preparing its financial statements as noted further within the Corporate Governance Report.
Presentation of income statement
In order to better reflect the activities of a Venture Capital Trust and in accordance with guidance issued by the Association of Investment Companies (“AIC”), 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 Part 6 of the Income Tax Act 2007.
Investments
Venture capital investments are designated as “fair value through profit or loss” assets due to investments being managed and their performance evaluated on a fair value basis. A financial asset is designated within this category if it is both acquired and managed on a fair value basis, with a view to selling after a period of time, in accordance with the Company’s documented investment policy.
Investments quoted on recognised stock markets are measured using bid prices.
The valuation methodologies for unquoted instruments (comprising equity and loan notes), used by the IPEV to ascertain the fair value of an investment, are as follows:
- Calibration to the price of recent investment;
- Multiples;
- Net assets;
- Discounted cash flows or earnings (of the underlying business);
- Discounted cash flows (from the investment); and
- Industry valuation benchmarks.
The methodology applied takes account of the nature, facts and circumstances of the individual investment and uses reasonable data, market inputs, assumptions and estimates in order to ascertain fair value, as explained in the investment accounting policy above. Where an investee company has gone into receivership, liquidation or administration and there is little likelihood of a recovery, the loss on the investment, although not physically disposed of, is treated as being realised.
Gains and losses arising from changes in fair value are included in the income statement as a capital item.
It is not the Company’s policy to exercise significant influence or joint control over investee companies. Therefore, the results of these companies are not incorporated into the Income Statement, except to the extent of any income accrued. This is in accordance with the SORP and FRS 102 sections 14 and 15 that do not require portfolio investments to be accounted for using the equity method of accounting.
Calibration to price of recent investment requires a level of judgment to be applied in assessing and reviewing any additional information available since the last investment date. The Board and Adviser consider a range of factors in order to determine if there is any indication of decline in value or evidence of increase in value since the recent investment date. If no such indications are noted the price of the recent investment will be used as the fair value for the investment.
Examples of signals which could indicate a movement in value are: -
- Changes in results against budget or in expectations of achievement of technical milestones patents/testing/ regulatory approvals)
- Significant changes in the market of the products or in the economic environment in which it operates
- Significant changes in the performance of comparable companies
- Internal matters such as fraud, litigation or management structure.
In respect of disclosures required by the SORP for the 10 largest investments held by the Company, the most recent publicly available accounts information, either as filed at Companies House, or announced to the London Stock Exchange, is disclosed. In the case of unlisted investments, this may be abbreviated information only.
Judgements in applying accounting policies and key sources of estimation uncertainty
The key estimates in the financial statements is the determination of the fair value of the unquoted investments by the Directors as it impacts the valuation of the unquoted investments at the balance sheet date.
Of the Company’s assets measured at fair value, it is possible to determine their fair values within a reasonable range of estimates. The fair value of an investment upon acquisition is deemed to be cost. Thereafter, investments are measured at fair value in accordance with FRS 102 sections 11 and 12, together with the International Private Equity and Venture Capital Valuation Guidelines (“IPEV”).
Income
Dividend income from investments is recognised when the shareholders’ right to receive payment has been established, normally the ex-dividend date.
Loan stock interest is accrued on a time apportioned basis, by reference to the principal outstanding and at the effective interest rate applicable and only where there is reasonable certainty of collection.
Distributions from investments in limited liability partnerships (“LLPs”) are recognised as they are paid to the Company. Where such items are considered capital in nature they are recognised as capital profits.
Expenses
All expenses are accounted for on an accrual’s basis. In respect of the analysis between revenue and capital items presented within the income statement, all expenses have been presented as revenue items, except as follows:
- Expenses which are incidental to the acquisition of an investment are deducted from the Capital Account.
- Expenses which are incidental to the disposal of an investment are deducted from the disposal proceeds of the investment.
- Expenses are split and presented partly as capital items where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated. Investment management fees are allocated 50% to revenue and 50% to capital, in order to reflect the Directors’ expected long-term view of the nature of the investment returns of the Company.
Taxation
The tax effects on different items in the Income Statement are allocated between capital and revenue on the same basis as the particular item to which they relate, using the Company’s effective rate of tax for the accounting period.
Due to the Company’s status as a Venture Capital Trust and the continued intention to meet the conditions required to comply with Part 6 of the Income Tax Act 2007, no provision for taxation is required in respect of any realised or unrealised appreciation of the Company’s investments.
Deferred taxation is not discounted and is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when the obligations or rights crystallise based on tax rates and law enacted or substantively enacted at the balance sheet date. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the accounts. Deferred tax assets are only recognised if it is expected that future taxable profits will be available to utilise such assets and are recognised on a non-discounted basis.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held at call with banks with an original maturity of three months or less.
Other debtors and other creditors
Other debtors (including accrued income) and other creditors are included within the accounts at amortised cost.
Share issue costs
Share issue costs have been deducted from the special reserve account.
Segmental reporting
The Company only has one class of business and one market.
Dividends payable
Dividends payable are recognised as distributions in the financial statements when the Company’s liability to make payment has been established, normally the record date.
Funds held in respect of shares not yet allotted
Cash received in respect of applications for new shares that have not yet been allotted is shown as “Funds held in respect of shares not yet allotted” and recorded on the Balance Sheet and Statement of Changes in Equity.
3. Basic and diluted return per share
| 2021 | 2020 | ||
| £’000 | £’000 | ||
| Return per share based on: | |||
| Net revenue (loss) for the financial year | (616) | (2,109) | |
| Net capital gain/(loss) for the financial year | 6,817 | (21,707) | |
| Total gain/(loss) for the financial year | 6,201 | (23,816) | |
| Weighted average number of shares in issue | 156,403,594 | 134,726,743 |
As the Company has not issued any convertible securities or share options, there is no dilutive effect on return per share. The return per share disclosed therefore represents both the basic and diluted return per share.
4. Principal Risks
The Company’s investment activities expose the Company to a number of risks associated with financial instruments and the sectors in which the Company invests. The principal financial risks arising from the Company’s operations are:
- Investment risks;
- Credit risk; and
- Liquidity risk.
The Board regularly reviews these risks and the policies in place for managing them. There have been no significant changes to the nature of the risks that the Company is exposed to over the year and there have also been no significant changes to the policies for managing those risks during the year.
The risk management policies used by the Company in respect of the principal financial risks and a review of the financial instruments held at the year-end, are provided below.
Investment risks
As a VCT, the Company is exposed to investment risks in the form of potential losses and gains that may arise on the investments it holds, in accordance with its investment policy. The management of these investment risks is a fundamental part of the investment activities undertaken by the Investment Adviser and overseen by the Board. The Investment Adviser monitors investments through regular contact with management of investee companies, regular review of management accounts and other financial information and attendance at investee company board meetings. This enables the Investment Adviser to manage the investment risk in respect of individual investments. Investment risk is also mitigated by holding a diversified portfolio spread across various business sectors and asset classes.
The key investment risks to which the Company is exposed are:
- Investment price risk;
- Interest rate risk; and
- Foreign currency exposure risk
The Company has undertaken sensitivity analysis on its financial instruments, split into the relevant component parts, taking into consideration the economic climate at the time of review, in order to ascertain the appropriate risk allocation.
Investment price risk
Investment price risk arises from uncertainty about the future prices and valuations of financial instruments held in accordance with the Company’s investment objectives. It represents the potential loss that the Company might suffer through investment price movements in respect of quoted investments and also changes in the fair value of unquoted investments that it holds.
Interest rate risk
The Company accepts exposure to interest rate risk on floating-rate financial assets through the effect of changes in prevailing interest rates. The Company receives interest on its cash deposits at a rate agreed with its bankers. Investments in loan stock and fixed interest securities attract interest predominately at fixed rates. A summary of the interest rate profile of the Company’s investments is shown below.
Interest rate profile of financial assets and financial liabilities
There are three levels of interest which are attributable to the financial instruments as follows:
- “Fixed rate” assets represent investments with predetermined yield targets and comprise fixed interest and loan note investments.
- “Floating rate” assets predominantly bear interest at rates linked to the Bank of England base rate and comprise cash at bank.
- “No interest rate” assets do not attract interest and comprise equity investments, non-interest-bearing convertible loan notes, loans and receivables (excluding cash at bank) and other financial liabilities.
The Company monitors the level of income received from fixed, floating and non interest rate assets and, if appropriate, may make adjustments to the allocation between the categories, in particular, should this be required to ensure compliance with the VCT regulations.
In March 2020, The Bank of England base rate decreased from 0.75% per annum to 0.1% per annum. Any potential change in the base rate at the current level would not have a material impact on the net assets and total return of the Company.
Foreign currency exposure risk
The Company has exposure to foreign currency risk through its investments in companies whose valuation is denominated and who report in USD. This has resulted in an unrealised foreign exchange loss of £735,000 (2020: nil) during the year. Due to the relatively low exposure to companies denominated in foreign currencies, the Board considers foreign currency risk to be at an acceptable level and does not seek to mitigate such exposure as this could restrict the net returns from the foreign currency investments.
Credit risk
Credit risk is the risk that the counterparty to a financial instrument is unable to discharge a commitment to the Company made under that instrument. The Company is exposed to credit risk through its holdings of loan stock in investee companies, investments in fixed interest securities, cash deposits and debtors.
The Investment Adviser manages credit risk in respect of loan notes with a similar approach as described under investment risks above. In addition, with the exception of new investments, credit risk is mitigated by registering floating charges, covering the full par value of the loan stock in the form of fixed and floating charges over the assets of the investee companies. The strength of this security in each case is dependent on the nature of the investee company’s business and its identifiable assets. The level of security is a key means of managing credit risk. Similarly, the management of credit risk associated with interest, dividends and other receivables is covered within the investment management procedures.
Cash is mainly held at Royal Bank of Scotland plc, with a balance also maintained at Bank of Scotland plc, both of which are A-rated financial institutions. Consequently, the Directors consider that the credit risk associated with cash deposits is low.
There has been limited changes in fair value during the year that can be directly attributable to changes in credit risk.
As at 31 March 2021, of the loan stock classified as “past due”, £1,931,000 relates to the principal of loan notes where, although the principal remains within the term, the investee company is not fully servicing the interest obligations under the loan note and is in arrears. Notwithstanding the arrears of interest, the Directors do not consider that the loan note itself has been impaired or the maturity of the principal has altered.
As at 31 March 2021, of the loan stock classified as “past due”, £7,328,000 relates to the principal of loan notes where the principal has passed its maturity date. As at the balance sheet date, the extent to which the principal is past its maturity date, £5.0 million falls within the banding of nil to 2 years past due and £2.3 million is 3 to 5 years past due. Notwithstanding this information, the Directors do not consider the loan notes to be impaired at the current time or that maturity dates of the principal have altered.
As at 31 March 2020, of the loan stock classified as “past due”, £1,103,000 related to the principal of loan notes where, although the principal remained within term, the investee company was not fully servicing the interest obligations under the loan note and was in arrears. Notwithstanding the arrears of interest, the Directors did not consider that the loan note itself had been impaired or the maturity of the principal had altered.
As at 31 March 2020, of the loan stock classified as “past due”, £7,420,000 related to the principal of loan notes where the principal had passed its maturity date. As at 31 March 2020, the extent to which the principal is past its maturity date, £5.5 million falls within the banding of nil to 2 years past due and £1.9 million is 3 to 5 years past due. Notwithstanding this information, the Directors did not consider the loan notes to be impaired at 31 March 2020 or that maturity dates of the principal had altered.
Liquidity risk
Liquidity risk is the risk that the Company encounters difficulties in meeting obligations associated with its financial liabilities. Liquidity risk may also arise from either the inability to sell financial instruments when required at their fair values or from the inability to generate cash inflows as required. The Company normally has a relatively low level of creditors (2021: £543,000, 2020: £263,000) and has no borrowings. Most of the quoted investments held by the Company are considered to be readily realisable. The Company always holds sufficient levels of funds as cash and readily realisable investments in order to meet expenses and other cash outflows as they arise. For these reasons the Board believes that the Company’s exposure to liquidity risk is minimal.
The Company’s liquidity risk is managed by the Investment Adviser in line with guidance agreed with the Board and is reviewed by the Board at regular intervals.
5. Related party transactions
Fees payable during the year to the Directors and their interest in shares of the Company are disclosed within the Directors’ Remuneration Report. There were no amounts outstanding and due to the Directors as at 31 March 2021 (2020: nil).
Further related party transactions include Investment Management and Administration fees payable to Downing LLP. In addition, Downing LLP was also paid promoter fees in connection with the fundraising offer that is currently open, which totalled £206,000 for the year ended 31 March 2021 (2020: £102,000).
The Company also has an agreement to pay an ongoing trail fee annually to Downing LLP, in connection with funds raised under original offers for subscription out of which Downing LLP has an obligation to pay trail commission to intermediaries. During the year to 31 March 2021, £172,000 (2020: £243,000) was paid to Downing LLP.
ANNOUNCEMENT BASED ON AUDITED ACCOUNTS
The financial information set out in this announcement does not constitute the Company's statutory financial statements in accordance with section 434 Companies Act 2006 for the year ended 31 March 2021, but has been extracted from the statutory financial statements for the year ended 31 March 2021 which were approved by the Board of Directors on 24 June 2021 and will be delivered to the Registrar of Companies. The Independent Auditor's Report on those financial statements was unqualified and did not contain any emphasis of matter nor statements under s 498(2) and (3) of the Companies Act 2006.
The statutory accounts for the year ended 31 March 2020 have been delivered to the Registrar of Companies and received an Independent Auditors report which was unqualified and did not contain any emphasis of matter nor statements under s 498(2) and (3) of the Companies Act 2006.
A copy of the full annual report and financial statements for the year ended 31 March 2021 will be printed and posted to shareholders shortly. Copies will also be available to the public at the registered office of the Company at St. Magnus House, 3 Lower Thames Street, London EC3R 6HD and will be available for download from and www.downing.co.uk