Thames Ventures VCT 2 PLC
LEI: 21380035MV1VRYEXPR95
31 July 2023
Final Results for the year ended 31 March 2023
| 31 March 2023 | 31 March 2022 | |
| Pence | Pence | |
| Ventures Share pool | ||
| Net Asset Value (“NAV”) per Ventures Share | 59.4 | 68.20 |
| Cumulative distributions | 8.0 | 5.25 |
| Total Return per Ventures Share | 67.4 | 73.45 |
| Healthcare Share pool | ||
| Net Asset Value (“NAV”) per Healthcare Share | 61.60 | 84.40 |
| Cumulative distributions | 8.75 | 5.25 |
| Total Return per Healthcare Share | 70.35 | 89.65 |
| AIM Share pool | ||
| Net Asset Value (“NAV”) per AIM Share | 101.1 | 99.9 |
| Cumulative distributions | - | - |
| Total Return per AIM Share | 101.1 | 99.9 |
| DSO D Share pool | ||
| Net Asset Value (“NAV”) per DSO D Share | 2.6 | 2.6 |
| Cumulative distributions | 102.0 | 102.0 |
| Adjustment for Performance Incentive estimate | - | - |
| Total Return per DSO D Share | 104.6* | 104.6 |
| DP67 Share pool | ||
| Net Asset Value (“NAV”) per DP67 Share | 24.8 | 26.8 |
| Cumulative distributions (since original launch) | 67.8 | 67.8 |
| Total Return per DP67 Share | 92.6 | 94.6 |
*Based on Total Return to Shareholders at 31 March 2023, no Performance Incentive is expected to become due to management.
Chairman’s Statement
Introduction
I report on what has been an eventful year for your Company, with the main Investment Manager changing from Downing LLP to Foresight Group LLP following the sale of Downing’s non-healthcare ventures division to Foresight in a transaction that completed on 4 July 2022.
The structure of the transaction has ensured a good level of continuity with the core investment team members moving to Foresight and Downing continuing to provide investment management services for the Healthcare share pool, quoted and non-ventures investments, as well as administration services for a handover period.
The Company changed its name to Thames Ventures VCT 2 plc on 2 September 2022 following the change of main Investment Manager.
Evergreen Share pool review
Ventures Share pool
The Ventures Share portfolio developed over the year, with £5.1 million invested in 12 VCT-qualifying companies, five of which were new additions to the portfolio.
The Ventures Share NAV at the year-end was 59.4p, representing a decrease of 6.1p per share or 8.9% over the year. This is after adding back the dividend of 2.75p per share, which was paid on 30 September 2022.
There has been a general decline in the portfolio investment valuations across the year, in line with sector trends for lower revenue and earnings multiples, due to economic concerns. Net unrealised losses for the period were £2.4 million.
There were four full exits during the year, plus a partial exit from one investment where part of the proceeds were rolled over into the acquirer. This produced net realised gains over cost of £1.2 million.
A more detailed review of the Ventures Share pool is included in the Investment Manager’s Report.
Healthcare Share pool
The Healthcare Share pool had a limited level of activity over the year with one new investment and two follow-ons made. There was also one full exit and some deferred consideration collected on an earlier investment.
The Healthcare Share NAV at the year-end was 61.6p, representing a decrease of 19.3p per share or 21.5% in NAV over the year after adjusting for the Healthcare dividend of 3.50p per share, which was paid on 30 September 2022.
The most significant movements in the portfolio were a full provision of £1.8 million which was made against Adaptix Limited, as well as falls in the share prices of a small number of AIM-quoted stocks (Arecor falling by £1.2 million, GENinCode by £573,000 and Destiny Pharma by £98,000), which accounted for the majority of the £4.1 million of net unrealised losses for the period. The Healthcare Share pool remains heavily exposed to the relatively volatile AIM market, with more that 30% of the pool’s value accounted for by two AIM-quoted investments.
A more detailed review of the Healthcare Share pool is included in the Investment Manager’s Report.
AIM Share pool
The AIM Share Pool launched in 2022 and is a small pool with net assets of £2.7 million. Conditions for VCT AIM investing since the launch have been weak, with a very limited number of VCT eligible AIM flotations and fundraisings.
Consequently, no AIM investments have been made to date, although funds have been placed in a money market fund and an equity income fund pending improved conditions for AIM investing.
The AIM Share NAV stood at 101.1p at the year end, representing an increase of 1.2p per share or 1.2% in NAV over the year.
The Board will continue to consider how beneficial the different share pools are for Shareholders. Any proposals by the Board will be put to Shareholders in due course.
Planned Exit Share pool review
The Company continues to hold two planned exit share pools which hold a small number of investments from which exits are sought in order to return funds to shareholders and wind up those share classes.
DSO D Share pool
The DSO D Share portfolio held two remaining investments as at 31 March 2023.
The two remaining investments are in a pub company Pearce and Saunders Limited and a related business, which have both sold their main assets. Attempts are being made to wind up both companies and extract the small amount of remaining value from them.
The DSO D Share NAV stood at 2.6p at the year end, showing no movement over the year. The Total Return to DSO Shareholders remains 104.6p per share, as reported at 31 March 2022, compared to the cost for Shareholders who invested in the original DSO D Share offer of 100.0p, or 70.0p per share net of income tax relief.
A more detailed review of the DSO D Share pool is included in the Investment Manager’s Report.
DP67 Share pool
The remaining value in the DP67 Share portfolio is in two investments which are both in the hospitality sector.
As at 31 March 2023, the DP67 Share NAV stood at 24.8p and Total Return stood at 92.6p per share, a decrease of 2.0p per share, equivalent to 2.1% in Total Return terms since 31 March 2022.
We are expecting final proceeds from Gatewales Limited in the near future. Cadbury House Holdings Limited owns a leisure and hotel facility in Bristol. The property is being marketed for sale although the current market is weak and the Investment Manager is keen to avoid a sale at undervalue.
A more detailed review of the DP67 Share pool is included in the Investment Manager’s Report.
Responsible investment
The Board is pleased to note the Investment Manager, Foresight Group’s, commitment to being a “Responsible Investor”. Foresight places Environmental, Social and Governance (ESG) criteria at the forefront of its business and investment activities in line with best practice and in order to enhance returns for their investors.
Fundraising
As noted in the half yearly report, a new offer for subscription was launched in September 2022. The offer has raised £1.6 million to date between the Ventures and Healthcare Share classes and is scheduled to close on 31 July 2023.
Fundraising was impacted by the various changes to the Company during the year and the Board is reviewing with the Investment Manager plans for renewed focus and momentum in the current year.
With a lower level of funds than expected raised, supporting the existing portfolio will be prioritised with the main impact being reduced potential for new investments, albeit in a market in which fundraising volumes are significantly reduced.
Dividends
Thames Ventures 2 has a target of seeking to pay annual dividends for the Ventures and Healthcare share classes of at least 4% of the respective NAVs per annum.
The Board is now reviewing, with the new Manager, how the Company can best achieve its objectives for Shareholders, including future fundraising plans. While this review is being undertaken, the Board believes it is prudent to be cautious with the Company’s uninvested funds until the plans of the future become clearer. For this reason, the proposed final dividends for the Ventures and Healthcare share classes are being reduced from their normal levels at this time. The Board will, however, give consideration to declaring further dividends once this review is complete.
The Board is proposing to pay final dividends of 1.25p per Ventures Share and 1.25p per Healthcare Share on 29 September 2023, to Shareholders on the register as at 1 September 2023. The proposed dividends are subject to Shareholder approval at the forthcoming AGM. Following the payment of the proposed dividends, the Company will have paid cumulative dividends of 9.25p per Ventures Share and 10.0p per Healthcare Share.
Further dividends in respect of the Company’s Planned Exit Share pools will be paid once further realisations have taken place. No dividends are expected to be paid by the AIM Share class in its initial years.
Share buybacks
The Company usually operates a policy of buying back its own shares that become available in the market, subject to regulatory and liquidity factors. The Board review these on a regular basis and will make appropriate adjustments as it sees fit. Any such purchases are undertaken at a price approximately equal to NAV (i.e. at a nil discount).
As mentioned above, while the Board is reviewing plans for the future of the Company. While this review is undertaken, for a period, the Board does not expect to undertake share buybacks in the Ventures, Healthcare and AIM Share pools. This review will allow a clear strategy for the allocation of the Company’s cash resources to be drawn up. The Board does, however, expect share buybacks to resume in due course.
As the focus for the two remaining Planned Exit Share pools is on returning funds to Shareholders via distributions, the Company will not undertake any further buybacks in respect of those share classes.
Panmure Gordon continues to act as the Company’s corporate broker, operating the share buyback process and ensuring that the quoted spread on the Company’s shares remains at a reasonable level. If you wish to sell or buy shares in the Company, the contact details of Panmure Gordon can be found within the Annual Report.
During the year ended 31 March 2023, the Company repurchased 3,014,102 Ventures Shares at an average price of 66.9p per Share and 1,007,037 Healthcare Shares at an average price of 72.8p per Share.
Annual General Meeting (“AGM”)
The Company invites Shareholders to attend this year’s AGM in person once more. The AGM is planned to take place at the offices of Foresight Group LLP, The Shard, 32 London Bridge Street, London, SE1 9SG at 3:30 p.m. on 12 September 2023.
Shareholders wishing to attend the AGM are requested to please notify Downing LLP via email, to tv2agm@downing.co.uk, in case there are changes to arrangements which need to be communicated at short notice.
Three items of special business are proposed at the AGM as follows:
- one resolution in respect of the authority to buy back shares as noted above; and
- two resolutions in respect of authority to allot shares and disapply pre-emption rights to give the Company flexibility in respect of further fundraising plans.
This year Shareholders will be able submit proxy votes electronically. The details required for voting will be sent to each shareholder. The deadline for proxy votes to be received is 3:30 p.m. on 8 September 2023.
Outlook
Although the main share classes have seen their portfolios fall in value over the year, these movements are not out of line with general market conditions for young growth businesses. Increasing interest rates, inflation and fears of recession have knocked investor confidence about growth prospects and valuation metrics.
The Board is cognisant that it takes time to nurture and realise value from potential outperformer companies whereas economic turmoil pushes weaker companies into difficulty. By reviewing the Managers’ portfolios and discussing proposed actions, the Board is generally satisfied that the Ventures and Healthcare portfolios have sufficient weight of stronger investments to generate growth in return for Shareholders in future.
The Board is committed to the Company’s strategy of nurturing young growth businesses through the stages of their development with the Managers providing full support to the companies that have the potential to deliver the targeted returns. The Board and the Managers have agreed suitable strategies for the available cash funds, with appropriate allocation between existing portfolio companies meriting further support, limited investment in new companies as well as meeting other demands on cash.
In respect of the planned exit share classes, the Board is encouraging the Manager to pursue transactions that will bring both share classes to a close this year.
As mentioned above, the Board is now reviewing possible options for the future of the Company, seeking to identity a way to execute the Company's strategy which will best serve Shareholders’ interests. I will, of course, report any significant developments to this end to Shareholders as soon as practicable.
Sir Aubrey Brocklebank Bt.
Chairman
Ventures Share Pool
Share Pool Summary
| 31 March 2023 | 31 March 2022 | |
| Financial highlights | Pence | Pence |
| Net Asset Value per Ventures Share | 59.40 | 68.20 |
| Cumulative distributions | 8.00 | 5.25 |
| Total Return per Ventures Share | 67.40 | 73.45 |
Investment Manager’s Report - Ventures Share Pool
i. Overview
Introduction
We present a review of the investment portfolio and activity for the Ventures Share pool for the year ended 31 March 2023.
This Investment Manager’s Report is split into three sections comprising this overview, a review of the Venture Capital Portfolio and a report on the portfolio of Liquidity Investments.
Net Asset Value and results
As at 31 March 2023, the NAV of a Ventures Share stood at 59.4p, a decrease of 6.1p (8.9%) for the year after adding back the Ventures dividend, of 2.75p per share, which was paid on 30 September 2022.
The return on ordinary activities for the Ventures Share pool for the year was a loss of £3.2 million (2022: gain of £1.8 million), comprising a revenue loss of £494,000 (2022: loss of £491,000) and a capital loss of £2.7 million (2022: gain of £2.3 million).
It is disappointing to report the Total Return to Shareholders as at 31 March 2023 of 67.4p which continues to be considered an underperformance against our expectations for the Ventures Share pool.
A final dividend of 1.25p per share is proposed to be paid on 29 September 2023, to Shareholders on the register at 1 September 2023.
Portfolio Overview
As at 31 March 2023, the Ventures Share pool held a portfolio of 36 Venture Capital investments and one Liquidity investment, with a combined value of £27.8 million.
Following the impact of the pandemic, there have continued to be challenges for businesses in the UK and internationally caused by the impact of the economic downturn with rising rates of inflation and interest.
The investment team continue to work closely with portfolio companies to provide guidance and, where appropriate, additional funding in support of potential value growth. The stronger companies in the portfolio have proven capable of delivering good performances and positive updates which is encouraging.
The valuation movements during the period are discussed in more detail in the following sections of this Investment Manager’s Report.
Portfolio Performance
Overall, several larger valuation uplifts in the Venture Capital Portfolio were outweighed by a number of valuation decreases during the period, resulting in a net valuation decrease of £2.4 million across the portfolio. The carrying value of the Liquidity Investment portfolio has been adjusted to reflect quoted prices as at 31 March 2023. This resulted in a valuation decrease of £174,000 for the period. Of the two Liquidity Investments brought forward, one was exited during the period.
ii. Ventures Portfolio
Investment activity
During the period, a total of £5.1 million was invested in 12 businesses, five of which are new VCT Qualifying investments.
New Ventures investments
A total of £3.0 million was invested into new VCT Qualifying investments during the year. A description of each of these five companies is shown below.
CommerceIQ Inc (£1,749,000) is a pioneer in helping brands win on retail ecommerce channels. Their unified platform applies machine learning and automation across marketing, supply chain, and sales operations to help brands gain market share profitably.
Maestro Media Limited (£340,000) has developed a talent-led, e-learning media platform of multichannel e-commerce technology. This is a subscription-based platform which has secured a licence to use the BBC brand and has partnered with a number of recognised celebrities across various industries to deliver engaging content.
Vivacity Labs Limited (£493,000) provides traffic management software to optimise traffic flow by avoiding congestion and improve safety within cities and traffic junctions.
Audioscenic Limited (£200,000) is a spin-out from the University of Southampton’s Institute of Sound and Vibrational Research and has developed a software-based solution that unlocks the full potential of 3D audio.
Glisser Limited (£200,000) has built a platform that supports virtual and hybrid events.
Follow-on Ventures investments
A total of £2.1 million was invested as follow-on capital into existing businesses in the Venture Capital Portfolio, most notably:
FVRVS Limited (trading as Fundamental VR) (£537,000) has developed a platform, Fundamental Surgery, which is the market leading medical education platform delivering multimodal simulation and education across tethered and all‐in‐one VR, mixed reality and mobile, harnessing the very latest AI techniques.
Masters of Pie Limited (£219,000) developed Radical, a software solution that enables remote sharing and collaboration on large data sets.
Rated People Limited (£200,000) is an online marketplace connecting homeowners with local tradespeople.
Hackajob Limited (£1.0 million) is an online recruitment platform for employers seeking developers and engineers.
There were four full exits during the year from the Venture Capital portfolio. Total proceeds of £5.3 million were generated, producing a gain over cost of £1.1 million, although representing a loss over holding value of £131,000.
E‐Fundamentals Group Limited, a B2B developer of a Software as a Service (SaaS) analytics platform allowing ecommerce companies to accurately assess the performance of their products, generated proceeds of £3.7 million, realising a profit over cost of £2.2 million however a loss over the opening value of £137,000.
Firefly Learning Limited, an edtech e-learning platform which allows teachers, students and parents to share lesson plans and review homework, was sold during the period, generating proceeds of £1.0 million. The opening value of this investment was held at cost therefore there was an immaterial loss realised against both cost and value of £32,000.
Streethub Limited (trading as Trouva), an online marketplace for a curated range of homeware and lifestyle products, was sold during the period, generating proceeds of £242,000. The value of this investment was written down in 2022 as a result of the business trading significantly behind budget therefore a gain over value of £100,000 was realised. It should be noted, however, that this was a disappointing overall loss against the original cost of £1.1 million.
Fenkle Street LLP, a non-qualifying investment, was created to fund the purchase of a property in central Newcastle and carry out its subsequent refurbishment under the Business Premises Renovation Allowance (BPRA) scheme. This sale generated proceeds of £343,000, realising a gain over cost of £42,000 however a loss over the opening value of £62,000.
Deferred consideration of £114,000 was also received in relation to the exit of ADC Biotechnology Limited which occurred in the year ended 31 March 2021.
Portfolio valuation
During the period, the Venture Capital portfolio of the Ventures Share pool recognised an unrealised loss in value of £2.4 million, including unrealised foreign exchange gains of £286,000. Whilst there have been a number of positive developments within the Venture Capital portfolio, this was offset by the reduction in value of several companies predominantly due to underperformance in a challenging macroeconomic environment. Of the £2.4 million total unrealised loss, the most significant movements are noted below.
The largest gain in value was in Cornelis Networks, Inc, who delivers purpose-built high-performance fabrics for High Performance Computing (HPC), High Performance Data Analytics (HPDA) and Artificial Intelligence (AI). During the period, the company was uplifted by £1.5 million, including the impact of foreign exchange. This revaluation is the result of a calibration to the price set by a funding round during the year.
Virtual Class Limited (trading as Third Space Learning), a platform offering personalised online lessons from specialist tutors, was uplifted by £383,000 as a result of continued growth in revenues and their customer base.
Ayar Labs Inc, the developer of components for high performance computing and data centre applications, was uplifted by £314,000, including the impact of foreign exchange. This revaluation is the result of a calibration to the price set by a funding round during the year.
Bulbshare Limited, a company that enables brands to build communities from their existing customers, has performed well during the year with revenues continuing to grow, resulting in a valuation uplift of £178,000 as at the year end.
Disappointingly, there were a number of unrealised losses recognised during the period. Some of these came from the more vulnerable businesses within the portfolio, however there were some material losses recognised to account for funding and liquidity risks faced by some of the larger portfolio companies. The greatest unrealised loss in the period was from Cambridge Touch Technologies, a company developing pressure sensitive multi touch technology. The investment suffered an unrealised fair value loss of £764,000 as a result of the challenging macroeconomic environment and weaker access to funding.
FundingXchange Limited, a fintech platform delivering SME lenders insights into their portfolio trends, was revalued downwards by £510,000 to calibrate to the price of last funding round.
Hackajob Limited, a marketplace for technical hires, was revalued downwards by £358,000 to calibrate to the price of last funding round.
Trinny London Limited, a cosmetics and skincare brand, was revalued downwards by £306,000 due to reduced confidence in consumer spending.
Carbice Corporation Inc. This company has developed a suite of products based on its carbon material called Carbice Carbon which is primarily used as thermal management solutions to enable greater thermal conductivity. The valuation was reduced by £233,000, including the impact of foreign exchange, as a result of the challenging macroeconomic environment and access to funding.
There were three investments that were written down to nil during the year. These were Glisser Limited, Hummingbird Technologies Limited and Channel Mum Limited, resulting in a combined unrealised loss over original cost of £1.7 million and a loss over carrying value of £761,000.
The remaining investments in the Venture Capital Portfolio were adjusted in value by a total net loss of £1.4 million as at 31 March 2023, including the impact of foreign exchange.
Liquidity Investments
The carrying value of the remaining Liquidity Investment has been adjusted to reflect its quoted price as at 31 March 2023. This resulted in a total reduction of £174,000 for the year.
Foresight Group LLP
Review of Investments – Ventures Share Pool
The following investments were held at 31 March 2023:
Cost | Valuation | Valuation movement in period | % of portfolio | |
| Portfolio of investments | £’000 | £’000 | £’000 | |
| Ventures investments | ||||
| Cornelis Networks, Inc. | 1,402 | 2,874 | 1,504 | 9.2% |
| Virtual Class Limited (Third Space Learning) | 1,053 | 2,199 | 383 | 7.1% |
| Ayar Labs, Inc. | 764 | 1,840 | 314 | 5.9% |
| Rated People Limited | 1,582 | 1,821 | (274) | 5.8% |
| CommerceIQ Limited | 1,749 | 1,731 | (18) | 5.6% |
| Imagen Limited | 1,000 | 1,703 | (60) | 5.5% |
| Hackajob Limited | 1,284 | 1,665 | (358) | 5.3% |
| Ecstase Limited (t/a ADAY) | 1,000 | 1,000 | (257) | 3.2% |
| Trinny London Limited | 219 | 934 | (306) | 3.0% |
| Upp Technologies Group Limited (previously Volo Commerce) | 1,136 | 923 | (213) | 3.0% |
| Masters of Pie Limited | 886 | 876 | (10) | 2.8% |
| Arecor Therapeutics plc^ | 418 | 822 | (319) | 2.6% |
| Parsable, Inc. | 766 | 753 | 42 | 2.4% |
| Limitless Technology Limited | 757 | 703 | (217) | 2.3% |
| FVRVS Limited (t/a Fundamental VR) | 787 | 678 | (218) | 2.2% |
| Cambridge Touch Technologies Limited | 959 | 605 | (764) | 1.9% |
| Congenica Limited | 734 | 605 | (141) | 1.9% |
| Vivacity Labs Limited | 493 | 490 | (3) | 1.6% |
| Maverick Pubs (Holdings) Limited | 1,000 | 444 | (6) | 1.4% |
| Bulbshare Limited | 249 | 427 | 178 | 1.4% |
| BBC Maestro Limited | 340 | 419 | 79 | 1.3% |
| Carbice Corporation | 656 | 406 | (233) | 1.3% |
| MIP Discovery Limited | 300 | 300 | - | 1.0% |
| FundingXchange Limited | 1,050 | 276 | (510) | 0.9% |
| Distributed Limited | 275 | 275 | - | 0.9% |
| Audioscenic Limited | 200 | 200 | - | 0.6% |
| Destiny Pharma plc^ | 500 | 88 | (65) | 0.3% |
| Lignia Wood Company Limited | 1,778 | - | - | - |
| Empiribox Holdings Limited | 1,563 | - | - | - |
| Live Better With Limited | 1,211 | - | - | - |
| Ormsborough Limited | 900 | - | - | - |
| Channel Mum Limited | 757 | - | (311) | - |
| Hummingbird Technologies Limited | 750 | - | (250) | - |
| Lineten Limited | 400 | - | - | - |
| Glisser Limited | 200 | - | (200) | - |
| London City Shopping Centre Limited* | 30 | - | - | - |
| 29,148 | 25,057 | (2,233) | 80.4% | |
| Liquidity investments | ||||
| Downing Strategic Micro-Cap Investment Trust plc*^ | 4,269 | 2,701 | (174) | 8.7% |
| 33,417 | 27,758 | (2,407) | 89.1% | |
| Cash at bank and in hand | 3,430 | 10.9% | ||
| Total investments | 31,188 | 100.0% |
*non-qualifying investment
^listed and traded on the London Stock Exchange
All Ventures investments are incorporated in England and Wales, except Ayar Labs, Inc. Cornelis Networks, Inc. and Parsable, Inc. which are incorporated in USA.
Investment movements for the year ended 31 March 2023
| Cost | |
| Additions | £’000 |
| Ventures investments | |
| CommerceIQ Limited | 1,749 |
| Hackajob Limited | 1,000 |
| FVRVS Limited (t/a Fundamental VR) | 537 |
| Vivacity Labs Limited | 493 |
| BBC Maestro Limited | 340 |
| Masters of Pie Limited | 219 |
| Glisser Limited | 200 |
| Audioscenic Limited | 200 |
| Rated People Limited | 200 |
| Streethub Limited (t/a Trouva) | 71 |
| Upp Technologies Group Limited (previously Volo Commerce) | 59 |
| Channel Mum Limited | 20 |
| 5,088 |
| Cost | Valuation at 01/04/22 | Proceeds | (Loss)/ gain vs. cost | Realised gain/(loss) | |
| Disposals | £’000 | £’000 | £’000 | £’000 | £’000 |
| Ventures investments | |||||
| Streethub Limited (t/a Trouva) | 1,350 | 142 | 242 | (1,108) | 100 |
| E-Fundamentals (Group) Limited | 1,508 | 3,847 | 3,710 | 2,202 | (137) |
| Firefly Learning | 1,047 | 1,047 | 1,015 | (32) | (32) |
| Fenkle Street LLP* | 301 | 405 | 343 | 42 | (62) |
| ADC - deferred proceeds | - | - | 114 | 114 | 114 |
| Loan note conversions | |||||
| Hackajob Limited | 500 | 500 | 500 | - | - |
| FVRVS Limited (t/a Fundamental VR) | 125 | 125 | 125 | - | - |
| Liquidity investments | |||||
| MI Downing UK Micro-Cap Growth Fund B Accum* | 123 | 116 | 139 | 16 | 23 |
| 4,954 | 6,182 | 6,188 | 1,234 | 6 |
*non-qualifying investment
Healthcare Share Pool
Share Pool Summary
| 31 March 2023 | 31 March 2022 | |
| Financial highlights | Pence | Pence |
| Net Asset Value per Healthcare Share | 61.60 | 84.40 |
| Cumulative distributions | 8.75 | 5.25 |
| Total Return per Healthcare Share | 70.35 | 89.65 |
Investment Manager’s Report- Healthcare Share Pool
i. Overview
Introduction
We present a review of the investment portfolio and activity for the Healthcare Share pool over the year ended 31 March 2023.
This Investment Manager’s Report is split into three sections comprising this overview, a review of the Healthcare Portfolio and a report on the portfolio of Liquidity Investments.
Net Asset Value and results
As at 31 March 2023, the NAV of a Healthcare share stood at 61.6p, a decrease of 19.3p (21.5%) over the year after adding back the Healthcare dividend, of 3.50p per share, which was paid on 30 September 2022.
The loss on ordinary activities for the Healthcare Share pool for the year was £4.3 million (2022: return of £3.7 million), being a revenue loss of £272,000 (2022: £314,000) and a capital loss of £4.0 million (2022: £4.0 million gain).
The Total Return to Shareholders as at 31 March 2023, of 70.35p, continues to be considered an underperformance against our expectations for the Healthcare Share pool.
A proposed final dividend of 1.25p per share will be paid on 29 September 2023, to Shareholders on the register at 1 September 2023.
Portfolio Overview
As at 31 March 2023, the Healthcare Share pool held a portfolio of 15 Healthcare investments and one Liquidity investment, with a combined value of £12.4 million.
However, there are a number of risks which have continued through the year, including continued impact of growth of inflation and interest rates. We will continue to monitor the situation alongside our investee companies in order to minimise the risk exposure as much as possible and to provide guidance and support as necessary. The valuation movements during the period are discussed in more detail in the following sections of this Investment Manager’s Report.
Portfolio Performance
There were several valuation movements in the Venture Capital Portfolio during the year, resulting in a net unrealised loss of £4.1 million, as at 31 March 2023.
The carrying value of the one Liquidity Investment, Downing Strategic Micro-Cap Investment Trust plc, has been adjusted to reflect its quoted price as at 31 March 2023, resulting in a valuation decrease of £30,000 for the year.
ii. Healthcare Portfolio
Investment activity
During the year, a total of £1.6 million was invested in three businesses, one of which was a new VCT Qualifying investment.
New Healthcare investments
Qkine Limited (£303,000) is a manufacturer of animal-free, highly bioactive and innovative proteins and growth factors for life science applications. The products help to tackle fundamental biological and scale-up challenges for the fast-growing stem cell, organoid, regenerative medicine, and cellular agriculture sectors.
Follow-on Healthcare investments
A further £824,000 was invested in FVRVS Limited (trading as Fundamental VR) which provides surgery simulation software for enterprise clients and hospitals. A further £427,000 was invested in Invizius Limited which is developing novel primers with the aim of reducing adverse inflammatory responses.
Portfolio valuation
During the period, the Healthcare portfolio of the Share pool decreased in value by a total of 4.1 million.
Arecor, which is listed on AIM, has reduced in value by £1.2 million. We continue to believe that the company has a bright future as its star asset AT247 reads out its Phase 1 in Q4-23 in addition to its early-stage assets progressing through the clinic. Arecor also has partnered on-market assets which are expected to yield positive news flow through to 2025.
A full provision of £1.8 million was made against the investment in Adaptix Limited, when, after the period end, it became clear the company would not be able to complete its planned funding round and the business would need to urgently evaluate its options.
The valuation of FVRVS Limited (trading as Fundamental VR) decreased by £373,000 in order to calibrate to the most recent funding round.
The valuation of Congenica Limited has been written down by £350,000 as at 31 March 2023 to reflect trading performance tracking behind the business plan. Remedial actions have since been taken, including appointment of a new CEO who has been focused on commercials: partnering with notable organisations and improving revenues significantly. His go-to-market strategy with channel partners and government programs is beginning to deliver, which gives us more confidence of potential value being realised.
Destiny Pharma plc, which is listed on AIM, was reduced in value by £98,000. The company completed a much-awaited first out-licensing deal with Sebela Pharmaceuticals during the year and is now seeking partners for its other drug programmes. The Sebela deal provides a long-term path to value creation.
DiA Imaging Analysis has agreed an offer for acquisition from a large med-tech company in the space, with final completion of this transaction anticipated in Q2-23. The valuation has been increased by £135,000 to reflect the closing share price for the transaction subject to final working capital adjustments, which are anticipated to be de minimis.
GENinCode plc (“GENinCode”) which is listed on AIM, was reduced in value by £573,000. The business has continued to underperform against its targets; it is yet to make meaningful progress in the US and the European growth has not gained momentum. The business recently acquired Abcodia for no upfront cost, but we are yet to see the benefits of this acquisition. We continue to wait for meaningful US regulatory and market access progress.
The valuations of Invisiuz Limited and Qkine Limited have been increased by £71,000 and £76,000 respectively in order to calibrate to the most recent funding rounds.
Open Bionics Limited is an award‐winning designer, manufacturer and supplier of bionic limbs. The company uses 3D printing and scanning technology to produce custom‐made prosthetics at a lower manufacturing cost relative to existing technologies. The valuation has increased by £49,000 to reflect the position in the cap table and the shareholders participating preference terms.
There were no other valuation movements in the Venture Capital portfolio.
- Liquidity Investments
The value of the Healthcare Share pool’s holding in Downing Strategic Micro-Cap Investment Trust plc (“DSM”) decreased in value by £30,000 during the period. As at 31 March 2023, DSM’s mid-market share price traded at a discount to NAV of 18.1%, representing potential unrealised value in the company’s share price.
MI Downing Micro‐Cap Growth Fund (“DMCG”) was exited during the year for a modest profit over cost of £4,000.
See the Ventures Share pool Investment Managers Report for further information on the Liquidity Investments.
The Healthcare Share class, and its underlying portfolio of companies, is exposed to these sector factors and as a result we are focusing our attention for the coming 12 months on ensuring that our portfolio companies are adequately financed to enable them to continue to grow.
Outlook
Macroeconomic factors continue to impact the financial markets with a knock-on impact on the venture capital funding environment as many venture funds choose to focus on supporting their existing portfolios rather than looking to add new positions.
We may start to add new positions towards the end of the year if conditions turn more favourable.
Despite the sector headwinds, many of the companies in the portfolio are starting to make real commercial progress and are becoming attractive targets, as evidenced by the recent agreement to sell DiA to a large medtech corporate following the year end.
Downing LLP – Healthcare Ventures Team
Review of Investments – Healthcare Share Pool
The following investments were held at 31 March 2023:
Cost | Valuation | Valuation movement in period | % of portfolio | |
| Portfolio of investments | £’000 | £’000 | £’000 | |
| Healthcare investments | ||||
| Arecor Therapeutics plc^ | 1,533 | 3,015 | (1,171) | 22.8% |
| Open Bionics Limited | 1,000 | 1,428 | 49 | 10.8% |
| FVRVS Limited (t/a Fundamental VR) | 1,324 | 1,169 | (373) | 8.8% |
| GENinCode plc^ | 1,202 | 1,051 | (573) | 8.0% |
| Invizius Limited | 927 | 998 | 71 | 7.6% |
| Congenica Limited | 1,184 | 865 | (350) | 6.5% |
| Tidalsense Limited | 800 | 800 | - | 6.1% |
| Closed Loop Medicine Limited | 650 | 650 | - | 4.9% |
| DiA Imaging Analysis Limited | 415 | 564 | 135 | 4.3% |
| The Electrospinning Company Limited | 478 | 544 | - | 4.1% |
| Qkine Limited | 303 | 379 | 76 | 2.9% |
| MIP Discovery Limited | 300 | 300 | - | 2.3% |
| Destiny Pharma plc^ | 750 | 131 | (98) | 1.0% |
| Live Better With Limited | 1,106 | - | - | - |
| Adaptix Limited | 1,056 | - | (1,843) | - |
| 13,028 | 11,894 | (4,077) | 90.1% | |
| Liquidity Investments | ||||
| Downing Strategic Micro-Cap Investment Trust plc*^ | 729 | 461 | (30) | 3.5% |
| 13,757 | 12,355 | (4,107) | 93.6% | |
| Cash at bank and in hand | 860 | 6.4% | ||
| Total investments | 13,215 | 100.0% |
*non-qualifying investment
^listed and traded on the London Stock Exchange
Investment movements for the year ended 31 March 2023
| Cost | |
| Additions | £’000 |
| Healthcare investments | |
| FVRVS Limited (t/a Fundamental VR) | 824 |
| Invizius Limited | 427 |
| Qkine Limited | 303 |
| 1,554 |
| Cost | Valuation at 01/04/22 | Proceeds | Gain vs. cost | Realised gain | |
| Disposals | £’000 | £’000 | £’000 | £’000 | £’000 |
| Healthcare investments | |||||
| Future Health Works Limited (t/a MyRecovery) | 528 | 750 | 798 | 270 | 48 |
| FVRVS Limited (t/a Fundamental VR) | 250 | 250 | 250 | ||
| ADC - deferred proceeds | - | - | 195 | 195 | 195 |
| Liquidity investments | |||||
| MI Downing UK Micro-Cap Growth Fund B Accum* | 40 | 37 | 44 | 4 | 7 |
| 818 | 1,037 | 1,287 | 469 | 250 |
*non-qualifying investment
Review of Investments – AIM Share Pool
Share Pool Summary
| 31 March 2023 | 31 March 2022 | |
| Financial highlights | Pence | Pence |
| Net Asset Value per AIM Share | 101.1 | 99.9 |
| Cumulative distributions | - | - |
| Total Return per AIM Share | 101.1 | 99.9 |
Investment Manager’s Report- AIM Share Pool
Introduction
The fundraising for the AIM Share Class was launched in August 2021 at a time when markets were performing well, as the economy started to rebound from the release of the constraints of the pandemic. At that time, we were seeing a steady flow of potentially attractive IPOs on AIM which were eligible for investment by VCTs.
The world has changed dramatically since then with the Ukraine conflict, recessionary fears, continued high inflation and increasing interest rates combining to shake investor confidence, resulting in an extended period when there were no suitable investment opportunities for the share class.
In view of the lack of AIM-IPOs we invested a proportion of the funds raised in a cash fund and equity income fund looking to produce some returns from the uninvested funds.
Net Asset Value and results
As at 31 March 2023, the NAV of an AIM share stood at 101.1p, an increase of 1.2p (1.2%) over the year.
Outlook
Despite the frustrations of not being able to invest the share pool’s funds as planned, it is pleasing to be able to report a positive return when, over the same period, the AIM market in general has suffered substantial losses.
With the challenge of investing the share pool’s funds and the fact that the pool is very small in size, we are discussing plans for the future of the pool with the Board and seeking to find a strategy which is in Shareholders’ best interests.
Downing Fund Managers
Review of Investments – AIM Share Pool
The following investments were held at 31 March 2023:
Cost | Valuation | Valuation movement in period | % of portfolio | |
| Portfolio of investments | £’000 | £’000 | £’000 | |
| Liquidity Investments | ||||
| BlackRock Cash Fund Class D Accumulating* | 1,157 | 1,172 | 15 | 42.7% |
| Vanguard FTSE U.K. Equity Income Index Fund GBP Acc* | 643 | 721 | 78 | 26.3% |
| 1,800 | 1,893 | 93 | 69.0% | |
| Cash at bank and in hand | 850 | 31.0% | ||
| Total investments | 2,743 | 100.0% |
*non-qualifying investment
DSO D Share Pool
Share Pool Summary
| 31 March 2023 | 31 March 2022 | |
| Financial highlights | Pence | Pence |
| Net Asset Value per DSO D Share | 2.6 | 2.6 |
| Cumulative distributions | 102.0 | 102.0 |
| Adjustment for Performance Incentive estimate | - | - |
| Total Return per DSO D Share | 104.6 | 104.6 |
Investment Manager’s Report - DSO D Share Pool
Introduction
The DSO D Share pool now has two investments left which we need to exit allow the share pool to wind up. This process is unfortunately taking some time to complete.
Net Asset Value and results
The Net Asset Value (“NAV”) per DSO D Share at 31 March 2023 stood at 2.6p, showing no movement over the year. A performance incentive fee is not expected to become payable and so a deduction for this is not applicable. However, should the performance incentive fee hurdles ultimately be met, a fee could become due.
Total Return stands at 104.6p per share compared to initial cost to Shareholders, net of income tax relief, of 70.0p per share. We consider this to be satisfactory performance when compared to the initial NAV of 100p.
The loss on ordinary activities after taxation for the year was £8,000 (2022: £3,000), comprising a revenue profit of £20,000 (2022: loss of £16,000) and a capital loss of £28,000 (2022: gain of £13,000).
Investments
As at 31 March 2023, the DSO D Share pool held two investments with a total value of £16,000.
Portfolio valuation
During the year, the carrying value of the portfolio of investments held by the DSO D Share pool was reduced by £27,000.
Pearce and Saunders Limited and Pearce and Saunders DevCo Limited are the only remaining investments in the portfolio. The final pub was sold some time ago and an Insolvency Practitioner is being appointed to distribute funds via a liquidation. The valuation has been reduced by £27,000 as at 31 March 2023 to reflect expected value of future distributions.
Outlook
We are hopeful that the formal process now being undertaken to wind up the remaining companies will allow this process to complete in the near future. Once this is done, a final distribution will be made to DSO D Shareholders.,
Foresight Group LLP
Review of Investments - DSO D Share Pool
The following investments were held at 31 March 2023:
Cost | Valuation | Valuation movement in year | % of Portfolio | |
| Portfolio of investments | £’000 | £’000 | £’000 | |
| Pearce and Saunders DevCo Limited* | 19 | 16 | - | 8.3% |
| Pearce and Saunders Limited | 255 | - | (27) | - |
| 274 | 16 | (27) | 8.3% | |
| Cash at bank and in hand | 176 | 91.7% | ||
| Total investments | 192 | 100.0% |
* non-qualifying investment
All investments are incorporated in England and Wales.
DP67 Share Pool
Share Pool Summary
| 31 March 2023 | 31 March 2022 | ||
| Financial highlights | Pence | Pence | |
| Net Asset Value per DP67 Share | 24.8 | 26.8 | |
| Cumulative distributions | 67.8 | 67.8 | |
| Total Return per DP67 Share | 92.6 | 94.6 |
Investment Manager’s Report - DP67 Share Pool
Introduction
The process of seeking to realise the remaining investments for optimal proceeds and returning funds to DP67 Shareholders continues.
Net Asset Value and results
The Net Asset Value (“NAV”) per DP67 Share at 31 March 2023 stood at 24.8p, a decrease of 2.0p or 2.1% in Total Return terms during the year. Total Return stands at 92.6p per DP67 Share, compared to initial cost to Shareholders, net of income tax relief, of 70.0p per share. Compared to the initial NAV of 100p, we consider the Total Return to be an underperformance against the original expectations for the DP67 Share pool.
The loss on ordinary activities after taxation for the year was £221,000 (2022: gain of £934,000), comprising a revenue loss of £92,000 (2022: gain of £1.2 million) and a capital loss of £129,000 (2022: £247,000).
Investments
As at 31 March 2023, the DP67 Share pool held a portfolio of two investments of value, with that value totalling £1.1 million.
Portfolio activity
There was one realisation during the year ended 31 March 2023. £644,000 was received in respect of Fenkle Street LLP, which represents a healthy gain over cost of £239,000.
Portfolio valuation
The DP67 portfolio showed no movement in value during the year ended 31 March 2023.
Following a distribution from the underlying business which sold its hotel asset, in which Gatewales Limited holds an interest, it is estimated that the DP67 share pool will shortly receive £344,000. However, a significant provision against loan interest due from Gatewales Limited has had to be made during the period as the overall proceeds are expected to fall below previous estimates.
Attempts by Cadbury House Holdings to sell its conference centre and hotel property have been ongoing for some months now. During the year, no offers have been received that match the target valuation and therefore, the decision was made to continue to market the property until an buyer is found with an offer at an appropriate price. The DP67 Share pool’s holding remains held at the same value as reported at the end of last year and loan interest continues to be recognised in full, providing the share pool with £193,000 of income during the year.
Outlook
The challenge now is to achieve an exit from Cadbury House Holdings Limited at an acceptable valuation. The market for this type of assets is weak currently but we believe it is in the best interests of shareholders not to sell at undervalue even if this means the final exit takes longer. Further dividends will be paid once the final realisations have taken place.
Foresight Group LLP
Review of Investments – DP67 Share Pool
The following investments were held at 31 March 2023:
Cost | Valuation | Valuation movement in year | % of portfolio | |
| Portfolio of investments | £’000 | £’000 | £’000 | |
| Cadbury House Holdings Limited | 1,409 | 791 | - | 41.6% |
| Gatewales Limited* | 343 | 344 | - | 18.1% |
| Yamuna Renewables Limited | 400 | - | - | 0.0% |
| London City Shopping Centre Limited** | 99 | - | - | 0.0% |
| 2,251 | 1,135 | - | 59.7% | |
| Cash at bank and in hand | 766 | 40.3% | ||
| Total investments | 1,901 | 100.0% | ||
* partially qualifying investment
** non-qualifying investment
All investments are incorporated in England and Wales.
| Cost | Valuation at 01/04/22 | Proceeds | Gain vs. cost | Realised gain | |
| Disposals | £’000 | £’000 | £’000 | £’000 | £’000 |
| Fenkle Street LLP* | 405 | 759 | 644 | 239 | (115) |
| 405 | 759 | 644 | 239 | (115) |
*non-qualifying investment
Directors’ responsibilities
The Directors are responsible for preparing the Report of the Directors, the Directors’ Remuneration Report and the financial statements in accordance with applicable law and regulations. The Directors 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 applicable UK accounting standards have been followed, 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;
- prepare a directors’ report, a strategic report and directors’ remuneration report which comply with the requirements of the Companies Act 2006; and
- carry out a robust assessment of the principal risks facing the Company, as set out in the Strategic Report.The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions, 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 for Shareholders to assess the Company’s position, performance, business model and strategy.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other information included in the Annual Reports may differ from legislation in other jurisdictions.
Audited Income Statement for the year ended 31 March 2023
| Year ended 31 March 2023 | Year ended 31 March 2022 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Income | 284 | - | 284 | 1,296 | - | 1,296 |
| (Loss)/gain on investments | - | (6,307) | (6,307) | - | 6,599 | 6,599 |
| Total gain/(loss) from investments | 284 | (6,307) | (6,023) | 1,296 | 6,599 | 7,895 |
| Investment management fees | (472) | (472) | (944) | (531) | (531) | (1,062) |
| Other expenses | (689) | - | (689) | (409) | - | (409) |
| (Loss)/return on ordinary activities before tax | (877) | (6,779) | (7,656) | 356 | 6,068 | 6,424 |
| Tax on total comprehensive income and ordinary activities | - | - | - | - | - | - |
| (Loss)/return attributable to equity Shareholders, being total comprehensive income for the year | (877) | (6,779) | (7,656) | 356 | 6,068 | 6,424 |
| Basic and diluted return per share: | ||||||
| Ventures Share | (1.0p) | (5.5p) | (6.5p) | (1.0p) | 4.8p | 3.8p |
| Healthcare Share | (1.4p) | (20.0p) | (21.4p) | (1.6p) | 19.9p | 18.3p |
| AIM Share | (4.3p) | 8.2p | 3.9p | (1.5p) | (0.9p) | (2.4p) |
| DSO D Share | 0.3p | (0.4p) | (0.1p) | (0.2p) | 0.2p | 0.0p |
| DP67 Share | (0.8p) | (1.2p) | (2.0p) | 10.5p | (2.2p) | 8.3p |
The total column within the Income Statement represents the Statement of Total Comprehensive Income of the Company prepared in accordance with Financial Reporting Standard 102 (“FRS 102”). The supplementary revenue return and capital return columns are prepared in accordance with the Statement of Recommended Practice issued in July 2022 by the Association of Investment Companies (“AIC SORP”).
Income Statement for the year ended 31 March 2023
Analysed by Share pool – unaudited and non-statutory
Split as:
| Year ended 31 March 2023 | Year ended 31 March 2022 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| Ventures Share pool | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Income | 64 | 64 | 58 | - | 58 | |
| Net (loss)/gain on investments | - | (2,401) | (2,401) | - | 2,641 | 2,641 |
| Total gain/(loss) from investments | 64 | (2,401) | (2,337) | 58 | 2,641 | 2,699 |
| Investment management fees | (278) | (278) | (556) | (314) | (314) | (628) |
| Other expenses | (280) | - | (280) | (235) | - | (235) |
| (Loss)/return on ordinary activities before tax | (494) | (2,679) | (3,173) | (491) | 2,327 | 1,836 |
| Tax on total comprehensive income and ordinary activities | - | - | - | - | - | - |
| (Loss)/return attributable to equity Shareholders, being total comprehensive income for the year | (494) | (2,679) | (3,173) | (491) | 2,327 | 1,836 |
| Year ended 31 March 2023 | Year ended 31 March 2022 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| Healthcare Share pool | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Income | 4 | - | 4 | 21 | - | 21 |
| Net (loss)/gain on investments | - | (3,857) | (3,857) | - | 4,172 | 4,172 |
| Total (loss)/gain from investments | 4 | (3,857) | (3,853) | 21 | 4,172 | 4,193 |
| Investment management fees | (161) | (161) | (322) | (195) | (195) | (390) |
| Other expenses | (115) | - | (115) | (140) | - | (140) |
| (Loss)/return on ordinary activities before tax | (272) | (4,018) | (4,290) | (314) | 3,977 | 3,663 |
| Tax on total comprehensive income and ordinary activities | - | - | - | - | - | - |
| (Loss)/return attributable to equity Shareholders, being total comprehensive income for the year | (272) | (4,018) | (4,290) | (314) | 3,977 | 3,663 |
| Year ended 31 March 2023 | Year ended 31 March 2022 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| AIM Share pool | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Income | - | - | - | - | - | - |
| Net gain on investments | - | 93 | 93 | - | - | - |
| Total gain from investments | - | 93 | 93 | - | - | - |
| Investment management fees | (18) | (18) | (36) | (2) | (2) | (4) |
| Other expenses | (21) | - | (21) | (2) | - | (2) |
| (Loss)/gain on ordinary activities before tax | (39) | 75 | 36 | (4) | (2) | (6) |
| Tax on total comprehensive income and ordinary activities | - | - | - | - | - | - |
| (Loss)/gain attributable to equity Shareholders, being total comprehensive income for the year | (39) | 75 | 36 | (4) | (2) | (6) |
| Year ended 31 March 2023 | Year ended 31 March 2022 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| DSO D Share pool | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Income | 24 | - | 24 | - | - | - |
| (Loss)/gain on investments | - | (27) | (27) | - | 19 | 19 |
| Total gain/(loss) from investments | 24 | (27) | (3) | - | 19 | 19 |
| Investment management fees | (1) | (1) | (2) | (6) | (6) | (12) |
| Other expenses | (3) | - | (3) | (10) | - | (10) |
| Return/(loss) on ordinary activities before tax | 20 | (28) | (8) | (16) | 13 | (3) |
| Tax on total comprehensive income and ordinary activities | - | - | - | - | - | - |
| Return/(loss) attributable to equity Shareholders, being total comprehensive income for the year | 20 | (28) | (8) | (16) | 13 | (3) |
| Year ended 31 March 2023 | Year ended 31 March 2022 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | |
| DP67 Share pool | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 |
| Income | 192 | - | 192 | 1,217 | - | 1,217 |
| Net loss on investments | - | (115) | (115) | - | (233) | (233) |
| Total gain/(loss) from investments | 192 | (115) | 77 | 1,217 | (233) | 984 |
| Investment management fees | (14) | (14) | (28) | (14) | (14) | (28) |
| Other expenses | (270) | - | (270) | (22) | - | (22) |
| (Loss)/return on ordinary activities before tax | (92) | (129) | (221) | 1,181 | (247) | 934 |
| Tax on total comprehensive income and ordinary activities | - | - | - | - | - | - |
| (Loss)/return attributable to equity Shareholders, being total comprehensive income for the year | (92) | (129) | (221) | 1,181 | (247) | 934 |
Audited Balance Sheet as at 31 March 2023
| 2023 | 2022 | |
| £’000 | £’000 | |
| Fixed assets | ||
| Investments | 43,157 | 49,141 |
| Current assets | ||
| Debtors | 2,510 | 4,317 |
| Cash at bank and in hand | 6,082 | 8,384 |
| 8,592 | 12,701 | |
| Creditors: amounts falling due within one year | (1,214) | (965) |
| Net current assets | 7,378 | 11,736 |
| Net assets | 50,535 | 60,877 |
| Capital and reserves | ||
| Called up Share capital | 117 | 113 |
| Capital redemption reserve | 4 | 58 |
| Special reserve | 50,483 | 24,063 |
| Share premium account | - | 29,284 |
| Funds held in respect of shares not yet allotted | - | 7 |
| Revaluation reserve | 93 | 6,995 |
| Capital reserve – realised | 4,127 | 3,769 |
| Revenue reserve | (4,289) | (3,412) |
| Total equity Shareholders’ funds | 50,535 | 60,877 |
| Basic and diluted Net Asset Value per share: | ||
| DSO D Share | 2.6p | 2.6p |
| DP67 Share | 24.8p | 26.8p |
| Ventures Share | 59.4p | 68.2p |
| Healthcare Share | 61.6p | 84.4p |
| AIM Share | 101.1p | 99.9p |
Balance Sheet as at 31 March 2023
Analysed by Share pool – unaudited and non-statutory
Split as:
| 2023 | 2022 | |
| Ventures Share pool | £’000 | £’000 |
| Fixed assets | ||
| Investments | 27,758 | 31,259 |
| Current assets | ||
| Debtors | 925 | 1,801 |
| Cash at bank and in hand | 3,430 | 4,321 |
| 4,355 | 6,122 | |
| Creditors: amounts falling due within one year | (730) | (490) |
| Net current assets | 3,625 | 5,632 |
| Net assets | 31,383 | 36,891 |
| Capital and reserves | ||
| Called up share capital | 67 | 65 |
| Capital redemption reserve | 3 | 58 |
| Special reserve | 32,039 | 16,290 |
| Share premium account | - | 18,657 |
| Funds held in respect of shares not yet allotted | - | 2 |
| Revaluation reserve | 1,170 | 3,548 |
| Capital reserve – realised | 1,665 | 1,428 |
| Revenue reserve | (3,561) | (3,067) |
| Total equity Shareholders’ funds | 31,383 | 36,891 |
| 2023 | 2022 | |
| Healthcare Share pool | £’000 | £’000 |
| Fixed assets | ||
| Investments | 12,355 | 15,945 |
| Current assets | ||
| Debtors | 455 | 633 |
| Cash at bank and in hand | 860 | 2,483 |
| 1,315 | 3,116 | |
| Creditors: amounts falling due within one year | (221) | (310) |
| Net current assets | 1,094 | 2,806 |
| Net assets | 13,449 | 18,751 |
| Capital and reserves | ||
| Called up share capital | 28 | 27 |
| Capital redemption reserve | 1 | - |
| Special reserve | 15,395 | 7,752 |
| Share premium account | - | 8,594 |
| Funds held in respect of shares not yet allotted | - | 5 |
| Revaluation reserve | (295) | 4,031 |
| Capital reserve – realised | 177 | (73) |
| Revenue reserve | (1,857) | (1,585) |
| Total equity Shareholders’ funds | 13,449 | 18,751 |
| 2023 | 2022 | |
| AIM Share pool | £’000 | £’000 |
| Fixed assets | ||
| Investments | 1,893 | - |
| Current assets | ||
| Debtors | 2 | 604 |
| Cash at bank and in hand | 850 | 1,446 |
| 852 | 2,050 | |
| Creditors: amounts falling due within one year | (19) | (21) |
| Net current assets | 833 | 2,029 |
| Net assets | 2,726 | 2,029 |
| Capital and reserves | ||
| Called up share capital | 3 | 2 |
| Special reserve | 2,673 | (2) |
| Share premium account | - | 2,033 |
| Funds held in respect of shares not yet allotted | - | - |
| Revaluation reserve | 93 | - |
| Capital reserve – realised | - | - |
| Revenue reserve | (43) | (4) |
| Total equity Shareholders’ funds | 2,726 | 2,029 |
| 2023 | 2022 | |
| DSO D Share pool | £’000 | £’000 |
| Fixed assets | ||
| Investments | 16 | 43 |
| Current assets | ||
| Debtors | 21 | 61 |
| Cash at bank and in hand | 176 | 124 |
| 197 | 185 | |
| Creditors: amounts falling due within one year | (13) | (20) |
| Net current assets | 184 | 165 |
| Net assets | 200 | 208 |
| Capital and reserves | ||
| Called up share capital | 8 | 8 |
| Special reserve | 422 | 423 |
| Revaluation reserve | (258) | (231) |
| Capital reserve – realised | 22 | 22 |
| Revenue reserve | 6 | (14) |
| Total equity Shareholders’ funds | 200 | 208 |
| 2023 | 2022 | |
| DP67 Share pool | £’000 | £’000 |
| Fixed assets | ||
| Investments | 1,135 | 1,894 |
| Current assets | ||
| Debtors | 1,107 | 1,218 |
| Cash at bank and in hand | 766 | 10 |
| 1,873 | 1,228 | |
| Creditors: amounts falling due within one year | (231) | (124) |
| Net current assets | 1,642 | 1,104 |
| Net assets | 2,777 | 2,998 |
| Capital and reserves | ||
| Called up share capital | 11 | 11 |
| Special reserve | (46) | (400) |
| Revaluation reserve | (617) | (263) |
| Capital reserve – realised | 2,263 | 2,392 |
| Revenue reserve | 1,166 | 1,258 |
| Total equity Shareholders’ funds | 2,777 | 2,998 |
Statement of Changes in Equity for the year ended 31 March 2023
| Called up Share capital | Capital Redemption reserve | Special reserve | Share premium account | Funds held in respect of shares not yet allotted | Revaluation Reserve | Capital reserve -realised | Revenue reserve | Total | ||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | ||
| At 31 March 2021 | 102 | 58 | 29,417 | 20,010 | 241 | (1,143) | 3,132 | (3,768) | 48,049 | |
| Total comprehensive income | - | - | - | - | - | 6,335 | (267) | 356 | 6,424 | |
| Transfer between reserves* | - | - | (5,159) | - | - | 1,803 | 3,356 | - | - | |
| Unallotted shares | - | - | - | - | (234) | - | - | - | (234) | |
| Transactions with owners | ||||||||||
| Dividend paid | - | - | - | - | - | - | (2,452) | - | (2,452) | |
| Purchase of own shares | - | - | (195) | - | - | - | - | - | (195) | |
| Issue of shares | 11 | - | - | 9,501 | - | - | - | - | 9,512 | |
| Share issue costs | - | - | - | (227) | - | - | - | - | (227) | |
| At 31 March 2022 | 113 | 58 | 24,063 | 29,284 | 7 | 6,995 | 3,769 | (3,412) | 60,877 | |
| Total comprehensive income | - | - | - | - | - | (6,448) | (331) | (877) | (7,656) | |
| Transfer between reserves* | - | - | (2,540) | - | - | (454) | 2,994 | - | - | |
| Unallotted shares | - | - | - | - | (7) | - | - | - | (7) | |
| Transactions with owners | ||||||||||
| Dividend paid | - | - | - | - | - | - | (2,305) | - | (2,305) | |
| Cancellation of share premium | - | (58) | 31,785 | (31,727) | - | - | - | - | - | |
| Purchase of own shares | (4) | 4 | (2,825) | - | - | - | - | - | (2,825) | |
| Issue of shares | 8 | - | - | 2,500 | - | - | - | - | 2,508 | |
| Share issue costs | - | - | - | (57) | - | - | - | - | (57) | |
| At 31 March 2023 | 117 | 4 | 50,483 | - | - | 93 | 4,127 | (4,289) | 50,535 | |
* A transfer of £454,000 (2022: £1,803,000) representing previously recognised realised gains and losses on disposal of investments during the period has been made between the Revaluation Reserve and the Capital reserve - realised. A transfer of £2,540,000 (2022: £5,159,000) representing the total of: realised losses on the disposal of investments, cumulative realised losses on permanent fair value change, capital expenses and capital dividends in the period, has been made between the Capital Reserve - realised and the Special reserve.
Cash Flow Statement for the year ended 31 March 2023
| Unaudited non-statutory analysis | Audited | |||||
| Ventures Share pool | Healthcare Share pool | AIM Share Pool | DSO D Share pool | DP67 Share pool | Company | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Cash flows from operating activities | ||||||
| (Loss)/return on ordinary activities before taxation | (3,173) | (4,290) | 36 | (8) | (221) | (7,656) |
| Losses/(gains) on investments | 2,401 | 3,857 | (93) | 27 | 115 | 6,307 |
| (Decrease)/increase in creditors | 240 | (89) | (2) | (7) | 107 | 249 |
| Decrease in debtors | 876 | 178 | 602 | 40 | 111 | 1,807 |
| Net cash inflow/(outflow) from operating activities | 344 | (344) | 543 | 52 | 112 | 707 |
| Cash flow from investing activities | ||||||
| Purchase of investments | (5,088) | (1,554) | (1,800) | - | - | (8,442) |
| Proceeds from disposal of investments | 6,188 | 1,287 | - | - | 644 | 8,119 |
| Net cash inflow/(outflow) from investing activities | 1,100 | (267) | (1,800) | - | 644 | (323) |
| Net cash inflow/(outflow) before financing | 1,444 | (611) | (1,257) | 52 | 756 | 384 |
| Cash flows from financing activities | ||||||
| Repurchase of shares | (2,066) | (759) | - | - | - | (2,825) |
| Issue of share capital | 1,277 | 553 | 678 | - | - | 2,508 |
| Cost of issue of share capital | (28) | (12) | (17) | (57) | ||
| Funds held in respect of shares not yet allotted | (2) | (5) | - | - | - | (7) |
| Equity dividends paid | (1,516) | (789) | - | - | - | (2,305) |
| Net cash (outflow)/inflow from financing activities | (2,335) | (1,012) | 661 | - | - | (2,686) |
| Net change in cash | (891) | (1,623) | (596) | 52 | 756 | (2,302) |
| Cash and cash equivalents at start of the year | 4,321 | 2,483 | 1,446 | 124 | 10 | 8,384 |
| Cash and cash equivalents at end of the year | 3,430 | 860 | 850 | 176 | 766 | 6,082 |
| Cash and cash equivalents comprise | ||||||
| Cash at bank and in hand | 3,430 | 860 | 850 | 176 | 766 | 6,082 |
| Total cash and cash equivalents | 3,430 | 860 | 850 | 176 | 766 | 6,082 |
Cash Flow Statement for the year ended 31 March 2022
| Unaudited non-statutory analysis | Audited | |||||
| Ventures Share pool | Healthcare Share pool | AIM Share Pool | DSO D Share pool | DP67 Share pool | Company | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Cash flows from operating activities | ||||||
| (Loss)/return on ordinary activities before taxation | 1,836 | 3,663 | (6) | (3) | 934 | 6,424 |
| (Gains)/losses on investments | (2,641) | (4,172) | - | (19) | 233 | (6,599) |
| Increase in creditors | 253 | 211 | 21 | 3 | 50 | 538 |
| Increase in debtors | (1,337) | (379) | (604) | (32) | (1,217) | (3,569) |
| Net cash outflow from operating activities | (1,889) | (677) | (589) | (51) | - | (3,206) |
| Cash flow from investing activities | ||||||
| Purchase of investments | (2,070) | (4,764) | - | - | - | (6,834) |
| Proceeds from disposal of investments | 2,085 | 2,529 | - | 421 | - | 5,035 |
| Net cash inflow/(outflow) from investing activities | 15 | (2,235) | - | 421 | - | (1,799) |
| Net cash inflow/(outflow) before financing | (1,874) | (2,912) | (589) | 370 | - | (5,005) |
| Cash flows from financing activities | ||||||
| Repurchase of shares | (58) | (137) | - | - | - | (195) |
| Issue of share capital | 4,775 | 2,658 | 2,079 | - | - | 9,512 |
| Cost of issue of share capital | (122) | (61) | (44) | - | - | (227) |
| Funds held in respect of shares not yet allotted | (220) | (14) | - | - | - | (234) |
| Equity dividends paid | (1,321) | (542) | - | (590) | - | (2,453) |
| Net cash (outflow)/inflow from financing activities | 3,054 | 1,904 | 2,035 | (590) | - | 6,403 |
| Net change in cash | 1,180 | (1,008) | 1,446 | (220) | - | 1,398 |
| Cash and cash equivalents at start of the year | 3,141 | 3,491 | - | 344 | 10 | 6,986 |
| Cash and cash equivalents at end of the year | 4,321 | 2,483 | 1,446 | 124 | 10 | 8,384 |
| Cash and cash equivalents comprise | ||||||
| Cash at bank and in hand | 4,321 | 2,483 | 1,446 | 124 | 10 | 8,384 |
| Total cash and cash equivalents | 4,321 | 2,483 | 1,446 | 124 | 10 | 8,384 |
Notes
1. General information
Downing FOUR 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 and Venture Capital Trusts” revised July 2022 (“SORP”).
The financial statements are presented in pounds sterling and rounded to thousands. The Company’s functional and presentational currency is pounds sterling.
Going concern
The Directors have made an assessment of the company’s ability to continue as a going concern and are satisfied that the company has the resources to continue in business for the foreseeable future, being a period of 12 months from the date these Financial Statements were approved. Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Company’s ability to continue as a going concern, having taken into account the liquidity of the Company’s investment portfolio and the Company’s financial position in respect of its cash flows and investment commitments. Therefore, the Financial Statements have been prepared on the going concern basis.
Presentation of Income Statement
In order to better reflect the activities of a Venture Capital Trust, and in accordance with the SORP, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. The revenue return 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.
Reportable segments
The Company has one reportable segment as the sole activity of the Company is to operate as a VCT and all of the Company’s resources are allocated to this activity.
Investments
All investments are designated as “fair value through profit or loss” assets due to investments being managed and 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.
It is possible to determine the 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”).
Liquidity investments are measured using bid prices.
For unquoted investments, fair value is established by using the IPEV guidelines. The valuation methodologies for unquoted entities used by the IPEV to ascertain the fair value of an investment are as follows:
- Calibration to price of recent investment;
- Multiples;
- Net assets;
- Discounted cash flows or earnings (of 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.
Gains and losses arising from changes in fair value are included in the Income Statement for the year as a capital item and transaction costs on acquisition or disposal of the investment are expensed. Where an investee company has gone into receivership, liquidation or administration (where there is little likelihood of recovery), the loss on the investment, although not physically disposed of, is treated as being realised.
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 FRS 102 sections 14 and 15 and the SORP, which 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 manager considers 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 ten 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 estimate 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.
A price sensitivity analysis of the unquoted investments is provided within the Annual Report, under Investment price risk.
Income
Dividend income from investments is recognised when the Shareholders’ rights to receive payment have been established, normally the ex-dividend date.
Interest income is accrued on a time apportioned basis, by reference to the principal sum outstanding and at the effective rate applicable, and only where there is reasonable certainty of collection in the foreseeable future.
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 income.
Arrangement fee rebates received from the Investment Manager are treated as capital income following the date of investment.
Where previously accrued income is considered unrecoverable, a corresponding bad debt expense is recognised.
Expenses
All expenses are accounted for on an accruals basis, and are stated inclusive of any VAT charged. 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.
Expenses and liabilities not specific to a share class are generally allocated pro rata to the Net Asset Values of each share class.
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 which arises.
Deferred taxation, which is not discounted, 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 they crystallise, based on current tax rates and law. 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.
Other debtors and other creditors
Other debtors (including accrued income) and other creditors are included within the accounts at amortised cost.
Issue costs
Issue costs in relation to the shares issued for each share class have been deducted from the share premium account, special reserve or revenue reserve, as applicable, for the relevant share class.
Performance Incentive
Amounts payable in respect of Performance Incentive arrangements are recorded at such time that an obligation has been established. In respect of the DSO D Share, pool, should a Performance Incentive become payable it will be recorded as an expense item through the Income Statement. Performance Incentives in respect of all other Share classes are paid by way of dividends and will therefore be recognised in accordance with the dividend accounting policy. There is no Performance Incentive in place for the AIM Share class.
Dividends
Dividends payable are recognised as distributions in the financial statements when the Company’s liability to make payment has been established, typically once declared by the Board or approved by Shareholders at the AGM.
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.
3. Basic and diluted return per share
| Weighted Average number of shares in issue* | Revenue return/ (loss) | Capital (loss)/ gain | Total Comprehensive (loss)/ income | Basic and diluted (loss)/ return per share | |
| £’000 | £’000 | £’000 | Pence | ||
| Return per share is calculated on the following: | |||||
| Year ended 31 March 2023 | |||||
| Ventures Shares | 48,923,338 | (494) | (2,679) | (3,173) | (6.5p) |
| Healthcare Shares | 20,046,893 | (272) | (4,018) | (4,290) | (21.4p) |
| AIM Shares | 916,744 | (39) | 75 | 36 | 3.9p |
| DSO D Shares | 7,867,247 | 20 | (28) | (8) | (0.1p) |
| DP67 Shares | 11,192,136 | (92) | (129) | (221) | (2.0p) |
| Year ended 31 March 2022 | |||||
| Ventures Shares | 48,629,971 | (491) | 2,327 | 1,836 | 3.8p |
| Healthcare Shares | 20,007,047 | (314) | 3,977 | 3,663 | 18.3p |
| AIM Shares | 283,425 | (4) | (2) | (6) | (2.3p) |
| DSO D Shares | 7,867,247 | (16) | 13 | (3) | 0.0p |
| DP67 Shares | 11,192,136 | 1,181 | (247) | 934 | 8.3p |
*Excluding Management Shares
As the Company has not issued any convertible securities or share options, there is no dilutive effect on the return per DSO D Share, DP67 Share, Ventures Share, Healthcare Share or AIM Share. The return per share disclosed therefore represents both the basic and diluted return per share for all classes of share.
4. Basic and diluted Net Asset Value per share
| Shares in issue | 2023 Net Asset Value | 2022 Net Asset Value | ||||||||
| 2023 | 2022 | Pence per share | £’000 | Pence per share | £’000 | |||||
| Ventures Shares | 66,852,564* | 65,328,545* | 59.4 | 31,383 | 68.2 | 36,889 | ||||
| Healthcare Shares | 27,544,877* | 26,811,908* | 61.6 | 13,449 | 84.4 | 18,746 | ||||
| AIM Shares | 2,695,803 | 2,034,990 | 101.1 | 2,726 | 99.9 | 2,029 | ||||
| DSO D Shares | 7,867,247 | 7,867,247 | 2.6 | 200 | 2.6 | 208 | ||||
| DP67 Shares | 11,192,136 | 11,192,136 | 24.8 | 2,777 | 26.8 | 2,998 | ||||
| Funds held in respect of shares not yet allotted | - | 6 | ||||||||
| Net assets per Balance Sheet | 50,535 | 60,876 | ||||||||
* includes 13,976,149 (2022: 11,216,391) Management Shares and 5,712,064 (2022: 4,605,472) Healthcare Management Shares, which have not been included in the calculation of Net Asset Value per share as the right to distributions on the Management Shares is waived until certain performance hurdles have been met.
The Directors allocate the assets and liabilities of the Company between the DSO D Shares, DP67 Shares, Ventures Shares, Healthcare Shares and AIM Shares such that each share class has sufficient net assets to represent its dividend and return of capital rights.
As the Company has not issued any convertible shares or share options, there is no dilutive effect on the Net Asset Value per DSO D Share, per DP67 Share, per Ventures Share, per Healthcare Share or per AIM Share. The Net Asset Value per share disclosed therefore represents both the basic and diluted Net Asset Value per DSO D Share, per DP67 Share, per Ventures Share, per Healthcare Share and per AIM Share.
5. 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:
- Market 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:
Market 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 market risks is a fundamental part of investment activities undertaken by the Investment Manager and is overseen by the Board. The Manager monitors investments through regular contact with the management of investee companies, regular review of management accounts and other financial information and attendance at investee company board meetings. This enables the Manager 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 market risks to which the Company is exposed are:
- Investment price risk;
- Foreign exchange risk; and
- Interest rate 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 market price movements in respect of quoted investments, and also changes in the fair value of unquoted investments that it holds.
Foreign exchange risk
The Company has exposure to fluctuations in the prevailing market rates of exchange between the US Dollar ("USD") and the British Pound ("GBP"), as a result of holding investments in companies which use USD as their functional and reporting currency. The valuations of such investments are first performed in USD and subsequently converted to the equivalent GBP values at each reporting date. As at 31 March 2023, cumulative unrealised foreign exchange gains of £321,000 (2022: cumulative loss £171,000) had been recognised in the Income Statement, representing the movements in the USD:GBP exchange rates between the date of each relevant investment and the reporting date. The Board continues to review the exposure to fluctuations in foreign currencies but has not sought to mitigate the exposure at this time. The Company does however have relationships with foreign exchange service providers and will seek to reduce the impact of foreign exchange fluctuations on future cash flows as they arise.
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 notes attract interest, predominately at fixed rates. A summary of the interest rate profile of the Company’s investments is shown below.
There are three categories in respect of interest, which are attributable to the financial instruments held by the Company as follows:
- “Fixed rate” assets represent investments with predetermined yield targets and comprise certain loan note investments and preference shares;
- “Floating rate” assets predominantly bear interest at rates linked to Bank of England base rate or LIBOR and comprise cash at bank; and
- “No interest rate” assets do not attract interest and comprise equity investments, certain loan note investments, Liquidity investments, loans and receivables (excluding cash at bank) and other financial liabilities.
The Company monitors the level of income received from fixed and floating rate assets and, if appropriate, may make adjustments to the allocation between the categories, in particular, if this should be required to ensure compliance with the VCT regulations.
During the period the Bank of England base rate has increased from 0.75% per annum to 4.25% per annum at the period end (from 0.10% to 0.75% in the prior year). Following the period end, in May 2023, the rate increased further, to 5.00% per annum. Any potential change in the base rate, at the current level, would have an immaterial impact on the net assets and Total Return of the Company.
Credit risk
Credit risk is the risk that a 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 notes in investee companies, cash deposits and debtors. Credit risk relating to holdings of loan notes in investee companies is considered to be part of market risk.
The Company’s financial assets that are exposed to credit risk are summarised as follows:
The Manager manages credit risk in respect of loan notes with a similar approach as described under investment price risk. The management of credit risk, associated interest, dividends and other receivables is covered within the investment management procedures.
Cash is mainly held with Royal Bank of Scotland plc, an A-rated financial institution. Consequently, the Directors consider that the credit risk associated with cash deposits is low.
There have been limited changes in fair value during the year that are directly attributable to changes in credit risk.
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 at their fair values when required, or from the inability to generate cash inflows as required.
The Company has a relatively low level of creditors, being £1.2 million (2022: £965,000), all of which are payable within one year. The Company has no borrowings, and accordingly the Board believes that the Company’s exposure to liquidity risk is low. Also, 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 Manager in line with guidance agreed with the Board and is reviewed by the Board at regular intervals.
6. Controlling party and related party transactions
In the opinion of the Directors, there is no immediate or ultimate controlling party.
Fees payable during the year to the Directors and their interest in shares of the Company are disclosed within the Directors’ Remuneration Report and in the Report of the Directors. There were no amounts outstanding and due to the Directors as at 31 March 2023 (2022: nil).
Further related party transactions include Investment Management and Administration fees payable to Foresight Group LLP and Downing LLP.
In addition, Downing LLP was also paid promoter fees in connection with the offers for subscription which were open during the year. The total paid to Downing LLP during the year ended 31 March 2023 was £39,000 (2022: £149,000).
The Company also has an agreement to pay an ongoing trail fee annually to the Investment Manager, in connection with applicable proceeds raised under previous offers for subscription, out of which there is an obligation to pay trail commission to intermediaries. The total trail fee payable in respect of the year ended 31 March 2023 was £21,000, all of which was unpaid as at 31 March 2023 (2022; £24,000).
7. Events after the end of the reporting period
In the period between 31 March 2023 and the date of this report, the Company issued the following shares:
- 360,443 Ventures Shares, at an average price of 66.00p per share; and
- 1,722,102 Healthcare Shares, at an average price of 68.27p per share.
At today’s date, there were 67,213,007 Ventures Shares, 29,266,979 Healthcare Shares and 2,695,803 AIM Shares in issue, including Management Shares.
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 2023 but has been extracted from the statutory financial statements for the year ended 31 March 2023 which were approved by the Board of Directors on 31 July 2023 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 2022 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 2023 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 www.foresightgroup.eu.
