TIDMDDV1
DOWNING ONE VCT PLC
LEI: 213800R88MRC4Y3OIW86
7 July 2022
Final Results for the year ended 31 March 2022
Audited Audited
31 Mar 31 Mar
2022 2021
Pence Pence
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Net asset value per share ("NAV") 61.60 58.20
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Cumulative dividends paid since 12 November 2013 41.25 38.75
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Total Return (net asset value plus cumulative dividends
paid per share) 102.85 96.95
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Dividends in respect of financial year
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Interim dividend per share 1.25 1.25
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Proposed final dividend per share 1.25 1.25
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2.50 2.50
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Chairman's Statement
With the pandemic restrictions gradually being lifted through
the year ended 31 March 2022, the reopening of the economy has
supported a greater level of investment activity, particularly in
respect of disposals where we have seen some significant exits. It
is pleasing to report that this has also helped deliver an improved
set of results for the year.
Investment Advisory Arrangements
In June 2022, it was announced that Downing LLP ("Downing"), the
Investment Adviser, had agreed to sell its non-healthcare ventures
division to Foresight Group LLP ("Foresight"). As part of this
transaction, the Board has consented to a novation of the
investment advisory agreement from Downing to Foresight. The whole
of the Downing non-healthcare ventures team, including support
staff, moved to Foresight when the deal completed on 4 July
2022.
Downing will continue to provide investment advisory services
for the non-venture portfolio of investments, being the quoted
growth and yield focused investments, as well as administration
services, for a transitional period.
As part of the arrangement, the Board and Downing have agreed to
waive the investment advisory fee for the quarter ended June 2022,
equivalent to approximately GBP548,000.
Foresight is a substantial and well-respected fund manager, and
the Board believes that the transaction is in the best interests of
Shareholders who will benefit from the substantial resources at
Foresight as well as the continued continuity of the key investment
executives from Downing.
Your new point of contact for all enquiries is Foresight's
customer service team, who you can email at
investorrelations@foresightgroup.eu
https://www.globenewswire.com/Tracker?data=6ONC2qmE99WqQFlb579w7XM_U0mooOsLWcUtJJIR4sRMOudBQycGsQt83eSZDWZUKb2KWJXmAd6b0iCgAhHwsJOa6aFjxo_T60SQiZ1NX-0zGiSRweFU6yp6LKgXxs9IMgfY1rhbjzcAaSeNGwBCQg==
or call on 020 3667 8181.
We expect to announce a change of name for the Company in due
course.
Net asset value and results
As at 31 March 2022, the net asset value per share ("NAV") stood
at 61.6p, an increase of 5.9p (10.1%) over the year after adding
back dividends of 2.5p per share which were paid during the
year.
The Income Statement shows gains attributable to equity
shareholders for the year of GBP10.4 million comprising a revenue
gain of GBP2.5 million and a capital gain of GBP7.9 million.
Investment portfolio
Over the year, the Investment Adviser actively exited from a
number of portfolio companies, including several more mature yield
focused investments.
In total 18 full and partial exits completed, generating
proceeds of GBP16.4 million, with over 50% of the total proceeds
generated from two of the more mature investments held within the
portfolio. Downing Care Homes Holdings Limited, a special care
homes business has been held by the Company for over 20 years.
Proceeds of GBP5.0 million were received, which resulted in a gain
over original cost of GBP1.1 million. Additionally, the investment
regularly provided a yield across its lifetime and received a
further GBP1.8 million of rolled up loan interest upon
completion.
Universe Group plc, the quoted growth investment, was bought by
a private equity firm towards the end of the accounting period,
generating proceeds of GBP3.4 million. This represented a
successful exit for the Company, resulting in a gain over cost of
GBP1.9 million.
Further detail on these as well as the other exits during the
period can be found within the Investment Advisers Report and the
Review of Investments.
A portion of these funds were reinvested in line with current
VCT regulations into 18 growth investments. These tend to be
younger businesses with a higher risk/reward ratio. At the year
end, the Company held a portfolio of 91 active investments. Of
these, 35 are either quoted on AIM or other UK exchanges and have a
value of GBP26.7 million (31.0% of the portfolio, excluding cash).
The 36 unquoted growth investments have a value of GBP40.7 million
and represent 47.3% of the portfolio and the 20 unquoted yield
focused investments have a value of GBP18.6 million and represent
21.7% of the portfolio.
The year under review saw total unrealised gains of GBP4.9
million (approximately 65% from unquoted growth, 25% from quoted
growth and 10% from the yield focused investments).
The unquoted growth portfolio, which is now the primary focus of
the majority of new investment activity, produced net unrealised
gains of GBP3.2 million with setbacks from a number of investments
being well outweighed by the stronger performers.
The quoted investments are managed with a private equity-type
strategy of taking influential stakes in the companies and working
closely with them as they develop. This portfolio delivered net
unrealised gains of GBP1.3 million, with a significant contribution
from Tracsis plc.
The yield focused portfolio produced unrealised gains of
GBP473,000 over the year, plus income of GBP4.0 million.
Further details on the investment activity and performance are
included in the Investment Adviser's Reports below.
Dividends
Downing ONE's policy is to seek to pay annual dividends of at
least 4% of net assets per annum.
The Board is proposing to pay a final dividend of 1.75p per
share on 26 August 2022, subject to Shareholder approval at the
forthcoming AGM, to Shareholders on the register at 29 July 2022.
This will bring total dividends in respect of the year ended 31
March 2022 to 3.0p per share (2021: 2.5p), equivalent to 5.2% 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 shareholder can change their election via The Downing
Investor Hub provided by City Registrars at:
downing--vct.cityhub.uk.com
Fundraising
The Company launched a small top up offer for subscription
during November 2021. The offer was closed on 29 April 2022 having
raised GBP1.9 million.
As part of the Foresight transaction, Foresight has agreed to
waive its portion of the promoter's fee for existing Shareholders
who wish to participate in the Company's next fundraising offer,
planned for later this year.
Responsible investing
The Board notes the Investment Adviser, Downing LLP's,
commitment to being a "Responsible Investor". Downing LLP 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 VCT
investors.
Further detail on the Investment Adviser's approach to
responsible investment, including the key principles and their
screening approach, can be found in 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 4,845,526 shares at an average price of 57.8p per share,
representing 3.0% of shares in issue at the date of the last Annual
Report.
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 2022, qualifying investments represented 88.0% 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")
This year's AGM will be held at Foresight Group LLP, The Shard,
32 London Bridge Street, London, SE1 9SG at 10.30 a.m. on 15 August
2022.
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 above ; 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.
Outlook
The Board looks forward to working with Foresight and continuing
to work alongside the existing Downing executives in their new
home. The changes to the advisory arrangements are expected to give
the Company greater resources to continue to build the investment
portfolio and deliver positive returns to the Shareholders.
Downing ONE was more exposed than most VCTs to sectors heavily
impacted by the pandemic. During the course of the last year, we
have seen the start of the recovery process for some of the most
affected investments as they work to rebuild on updated business
plans and have delivered some pleasing exits.
The younger growth companies that have survived the challenges
of the last two years have generally been strengthened by their
experiences, although they, along with all portfolio companies,
will now face new challenges from rapidly increasing inflation and
the far-reaching effects of the conflict in Ukraine.
There is, once again, significant uncertainty as to the outlook
for businesses generally in the short and medium term, however we
can be reasonably sure that there will still be good opportunities
for investment out there. It will be more important than ever that
the Investment Adviser is able to identity and secure deals with
strong potential for the funds that the Company has available for
investment, while continuing to nurture the portfolio of existing
investments.
Chris Kay
Chairman
Investment Adviser's Report - Overview
Introduction
We present a review of the investment portfolio and activity
over the last financial year. As with prior years, 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 2022, the Company held a portfolio with a value of
GBP86.0 million comprising 91 quoted and unquoted companies, across
a diverse range of sectors in both the growth and yield-focused
categories. Investment valuations across all three sectors continue
to recover, resulting in an overall unrealised gain in the
portfolio. Further detail is included below.
The Company has seen a high level of both realisation and
investment activity across the year, with GBP16.4 million of
proceeds received for full and partial disposals from 18 different
investments. Over 50% of the proceeds generated were from the
unquoted yield focused investments which form a reducing part of
the portfolio. Some of the proceeds have been reinvested, with
GBP4.6 million deployed into eight new and 11 existing investments.
All of the investments made were growth investments, with eight
being quoted growth investments and the remaining 11 investments
made within the unquoted growth portfolio.
With the steady level of new investment activity recently, over
a third of the investment portfolio now comprises investments that
have been made within the past three years.
In line with this and the fact that new investment is all within
the growth category, the overall risk/reward ratio of the portfolio
has increased. This is consistent with the refocusing of the VCT
scheme that the UK Government undertook a few years ago. This trend
is expected to continue as exits from older yield focused
investments occur.
The growth investments, both unquoted and quoted, have been
growing steadily over the past 5 years, with there now being 30
active unquoted growth investments compared to 5 active unquoted
growth investments 5 years ago. The unquoted growth investments now
form 47% (2021: 42%) of the investment portfolio (excluding cash),
quoted growth investments equal 31% (2021: 28%) of the investment
portfolio (excluding cash) and the yield focused investments have
decreased to equal 22% (2021: 30%) of the investment portfolio
(excluding cash).
The shift towards more growth focused investments has become
more prevalent over recent years, and we expect this to continue as
progress with realisations of the maturing yield focused
portfolio.
Portfolio Performance
The performance of the portfolio over the year has produced an
unrealised gain of GBP4.9 million (2021: GBP7.6 million), with the
unquoted portfolio generating an unrealised gain of GBP3.6 million
and the quoted portfolio generating an unrealised gain of GBP1.3
million.
Throughout the coronavirus pandemic, we have sought to provide
as much support as possible to all investee companies. We are now
seeing some recovery of value from some of the heavily impacted
businesses.
The unquoted growth portfolio has seen the most significant
unrealised gains in the portfolio over the year, which totalled
GBP3.2 million. GBP1.2 million of unrealised gains have also been
recorded in the quoted growth portfolio and GBP472,000 unrealised
gains have been recognised in the unquoted yield focused.
Despite these positives, there are a number of emerging risks
facing the portfolio including the consequential impacts of the
conflict in Ukraine and increasing inflation and its impact on
investee companies' wages and other costs. Through our close
relationship with investee companies we seek to ensure that the
businesses are well placed to properly assess the fluid situation,
particularly in respect of potential impact of increased wages and
other costs, and the extent to which these may or may not be able
to be passed on to the end customer.
Further details on individual movements within the portfolio can
be found within the unquoted and quoted adviser reports below.
At the year end, of the 77 active investments, approximately
half are valued at, or above, cost. As noted previously, with a
large number of recent investments into the 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
Tracsis plc (GBP2.6 million) and GENinCode plc (GBP282,000). An
analysis of the unrealised gains and losses is 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, Ayar Labs, Inc
(GBP1.4 million), as well as E-Fundamentals (Group) Limited (GBP1.3
million). These gains were partially offset by unrealised losses,
most notably to StreetHub Limited (trading as Trouva) (GBP1.4
million) which sits in the unquoted growth portfolio and Pilgrim
Trading Limited (GBP1.3 million), which sits in the unquoted yield
focused portfolio, although it should be noted that the loss on
Pilgrim was offset by GBP1.2 million of loan stock interest
recognised during the period.
Realised gains, over carrying value, in the period totalled
GBP3.7 million, representing a realised loss over cost of GBP1.9
million. The most notable gains over carrying value were quoted
growth company Universe Group plc (gain of GBP2.1 million) and
unquoted growth company Xupes Limited (gain of GBP1.2 million). The
most notable losses over carrying value in the period related to
one of the older investments in the portfolio, Downing Care Homes
Holdings Limited which generated a loss over opening value of
GBP520,000 following the full exit towards the period end. However
it should be noted that this represented a gain over original cost
of GBP1.1 million, in addition to the receipt of interest income of
over GBP1.8 million.
Further details on these and other movements can be found within
the quoted and unquoted Investment Adviser Reports.
Income split
As at 31 March 2022, the Company received income of GBP4.6
million (2021: GBP1.3 million). GBP4.2 million (2021: GBP939,000)
of this balance related to loan stock interest, which significantly
increased year on year following the receipt of GBP1.8 million from
Downing Care Homes Holdings Limited upon exit and GBP381,000 from
the partial loan note and interest redemption on Doneloans Limited.
In addition, a number of the provisions made in the prior 24 months
have been released, as they are now deemed recoverable. As the
Company exits more of the older yield focused investments, loan
interest paid up to the VCT is expected to gradually decrease.
Additionally, the Company received dividend income from its
quoted growth portfolio of investments of GBP399,000, remaining
relatively consistent with the prior period receipts of
GBP357,000.
Portfolio Composition
With a significant level investment activity over the year to 31
March 2022, 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, with
the sector now representing approximately 23% of the investment
portfolio following further investment into this sector during the
period of GBP2.6 million.
The most notable new investment into this sector was DSTBTD
Limited (GBP775,000), with further details on this, as well as all
new investments, noted in the unquoted investment adviser's report
further below.
Following the exit of Downing Care Homes Holdings Limited,
exposure to the Healthcare Services sector has almost halved from
7% to 4% of the overall portfolio.
As a result of a significant level of exit proceeds generated
during the year of GBP16.4 million, at the period end, the Company
held GBP20.9 million in cash, which is expected to be deployed into
supporting the existing portfolio as well any new investment
opportunities as they arise.
Outlook
The portfolio has encountered various challenges over the last
24 months, and it is encouraging to see the Total Return up 5.9p on
the year.
Of the older investments, we believe that, on the whole, they
are leaner and positioned better than they were pre-COVID, and we
shall continue to progress with realisation plans for the remaining
yield focused investments.
As the portfolio continues to shift to one that is more focused
on growth investments, we believe that there will continue to be
new investment opportunities, as well as potential in the current
portfolio, that can drive improved performance.
As you will have seen in the Chairman's Statement, following the
year end, Downing LLP agreed to sell its non-Healthcare Ventures
business to Foresight Group LLP. As part of the transaction, the
investment advisory services agreement was novated from Downing to
Foresight on 4 July 2022 and the whole of the Downing Ventures team
and key support staff were transferred to Foresight. However, it
should be noted that the investment advisory services in respect of
the non-ventures portfolio, being the quoted growth and yield
focused investment will continue to be provided by Downing for a
transitional period.
We look forward to managing the assets under the umbrella of the
Foresight group, our new home, and the next chapter for the
Company.
Downing LLP
Investment Adviser's Report -- Unquoted Portfolio
We present a review of the unquoted investment portfolio for the
year ended 31 March 2022.
At 31 March 2022, the unquoted portfolio of 56 investments were
valued at GBP59.3 million. 36 of these with a value of GBP40.7
million are unquoted growth companies and 20 are unquoted yield
focused companies with a value of GBP18.6 million.
Unquoted Growth
Investment activity
During the period, there was a high level of realisation and
investment activity with GBP4.3 million of proceeds generated from
exits and a total of GBP3.1 million invested into unquoted growth
companies.
Three new investments were added to the unquoted growth
portfolio:
DSTBTD Limited (GBP775,000) (trading as Distributed) is a
software development company that helps to build a flexible and
effective workforce. The company enables enterprises to build
software and technology solutions by sourcing software developers,
onboarding them, and tracking their performance whilst also being
responsible for the outcomes of the technology solutions, proving
benefits to both the developers and the enterprise customers.
Bulbshare Limited (GBP749,000) is a company that enables brands
to build communities from their existing customers, gathering
consumer insights whilst offering a superior user experience for
those customers. This feedback results in more engaged customers
and builds value for the brand from user generated content,
reviews, and endorsements.
DiA Imaging Analysis Limited (GBP208,000) is a leading provider
of Artificial Intelligence based solutions for ultrasound analysis.
The investment will enable DiA to expand on its portfolio of
FDA-cleared and CE-marked AI-based ultrasound solutions which
enable clinicians to identify medical abnormalities with speed and
accuracy.
Follow on investments totalling GBP1.4 million were made into
eight companies, most notably Cambridge Touch Technologies Limited
(GBP500,000), Cambridge Respiratory Limited (GBP250,000) and
E-Fundamentals (Group) Limited (GBP166,000).
Details of the investment realisations during the year are set
out below. Total proceeds of GBP4.3 million were generated from 7
investments, producing a gain over holding value of GBP1.9 million,
although representing a loss over cost of GBP3.2 million.
The largest gain in the period related to Xupes Limited, a
pre-owned luxury goods retailer specialising in designer watches,
handbags, and jewellery. The investment was sold in October 2021,
returning GBP1.6 million, resulting in a gain over the opening
value of GBP1.2 million, however a loss over cost of
GBP637,000.
Curo Compensation Limited, the provider of a human resources
software service, was sold in the period, generating proceeds of
GBP1.6 million, resulting in a loss over cost of GBP59,000,
although this was a gain over the previous holding value of
GBP509,000.
Avid Technology Group Limited, a manufacturer of electrified
ancillary equipment for internal combustion engines was sold during
the period, generating proceeds of GBP429,000. The investment had
previously been fully provided against, so this represented a gain
of GBP429,000 in the period, although it should be noted that this
was a disappointing overall loss against the original cost of
GBP1.4 million.
Further deferred consideration was received from BridgeU Limited
in relation to the exit in 2021, producing further proceeds of
GBP143,000 in the year.
JRNI Limited, a business to business (B2B) software platform
that enables companies to offer online appointments and event
bookings for their customers and staff, exited, producing a gain
over carrying value and original cost of GBP23,000.
It is disappointing to report that Exonar Limited and Glownet
Limited both exited in full for nil proceeds during the year,
resulting in a combined loss over original cost of GBP1.3 million
and a realised loss over carrying value of GBP379,000.
Portfolio valuation
The unquoted portfolio, on the whole, performed well over the
period, resulting in a total unrealised gain of GBP3.6 million in
the period, including unrealised foreign exchange gains of
GBP511,000. GBP472,000 of the GBP3.6 million gain was recognised
within the unquoted yield focus portfolio, further detail can be
found below. The remaining GBP3.1 million was recognised within the
unquoted growth portfolio. The most significant movements are noted
on the following below:
The largest gain in value was in Ayar Labs, Inc, the developer
of components for high performance computing and data centre
applications. At the period end, the company was uplifted by GBP1.4
million, including the impact of foreign exchange. This revaluation
is the result of a calibration to the price set by a recent funding
round.
E-Fundamentals (Group) Limited, a Software as a Service (SaaS)
analytics company has continued to grow its customer base, both in
the UK and in the US, resulting in a valuation uplift of GBP1.3
million as at the year end.
Upp Technologies Limited, a provider of multichannel e-commerce
technology, was increased in value by GBP835,000 as its performance
recovers following a change in strategy and a new product
focus.
Hackajob Limited, the owner of an on-line marketplace for hiring
technical talent, was uplifted by GBP739,000 as a result of
recurring revenues continuing to grow.
GENinCode develops products and technology that helps patients
and healthcare practitioners assess and predict the onset of
cardiovascular disease, thrombosis, and to diagnose Familial
Hypercholesterolemia. During the period, in July 2021, the company
successfully completed an IPO which saw its shares quoted on AIM.
This result in an unrealised gain of GBP282,000 over the
period.
There were some setbacks to a small number of the more
vulnerable businesses within the portfolio, which has offset some
of the unrealised gains recognised at the period end. The largest
unrealised loss in the period was from Streethub Limited (trading
as Trouva), an online marketplace for a curated range of homeware
and lifestyle products. The company was reduced in value by GBP1.4
million, as a result of the business trading significantly behind
budget.
Empiribox Holdings Limited, a provider of equipment and training
to primary schools across the UK, was revalued downwards by
GBP606,000 as the business is yet to recover from the impacts of
the coronavirus pandemic.
Hummingbird Technologies Limited, the owner of an advanced crop
analytics platform that is powered by machine learning and aerial
imagery, was reduced in value by GBP502,000 as a result of a
reduction in revenue forecasts.
Unquoted Yield Focused
Investment activity
During the period, the Company made no new investments into this
portfolio, however it generated total proceeds of GBP8.7 from
disposals, producing a loss of GBP285,000 over opening value and a
GBP535,000 loss over original cost. Details of the realisations are
set out below.
The largest realisation in the period related to Downing Care
Homes Holdings Limited, which owned four specialist care homes. The
company was one of the long-standing investments for the VCT, with
the first care home acquired in 1999.
Following a successful exit, the sale generated proceeds of
GBP5.0 million, resulting in a loss over holding value of
GBP520,000, although it should be noted that this represented a
gain over original cost of GBP1.1 million, in addition to loan
interest proceeds received during the period of GBP1.8 million.
Pearce and Saunders Limited, the owner of a freehold pub in
South East London, repaid loan note principal of GBP88,000 during
the period, along with a redemption premium of GBP264,000.
Doneloans Limited, which holds a portfolio of secured loans,
repaid part of its loan notes during the period, resulting in
Downing ONE receiving capital proceeds of GBP1.4 million, and
associated interest of GBP381,000.
Nomansland Biogas Limited, an anaerobic digestion plant in
Devon, was fully exited during the period, resulting in a minor
loss of GBP21,000 against opening value and original cost.
During the period, the Company also exited from two of the four
Indian solar investments, Indigo Generation Limited and Ironhide
Generation Limited which were both developing solar farms on
adjacent land in India. After a series of setbacks, mainly due to
the reduction in prevailing energy prices in the Maharashtra region
of India, the investments were fully exited for minimal proceeds,
resulting in a combined loss over cost of GBP1.8 million, although
representing a minor realised gain over carrying value of
GBP8,000.
Portfolio valuation
The unquoted yield focused portfolio experienced a mixed year
with the overall unrealised movement producing a gain of
GBP472,000. The most significant movements are as follows:
Baron House Developments LLP, a company created to fund the
purchase of a property opposite Newcastle's Central Station
recognised the largest gain in the period. After being
significantly impacted by the coronavirus pandemic, we are pleased
to report that the hotel is being marketed for sale and first round
offers are expected to be received shortly with the estimated sales
price suggesting a healthy uplift of over GBP900,000.
Harrogate Street LLP, a property developer was uplifted by over
GBP700,000 in line with anticipated exit proceeds, with the sale
expected to complete over the coming months.
Despite these positives in the portfolio, some of the investee
companies suffered setbacks and as a result an unrealised loss has
been recognised. Pilgrim Trading Limited, the operator of two
children's nurseries in greater London, saw a reduction in the
carrying value of GBP1.3 million, but this was offset by the
recognition of GBP1.2 million of loan stock interest, most of which
was previously provided against. The business is making progress
and the ultimate payment of the accrued loan stock interest is now
more likely.
Doneloans Limited, which holds a portfolio of secured loan
notes, redeemed a small number of its loan notes during the period
below carrying value, resulting in a reduction of GBP135,000 in
line with the company's net assets as at 31 March 2022.
Conclusion and outlook
The unquoted portfolio continues to see reasonable recovery from
the significant challenges faced in the over the past 2 years.
We remain focused on exiting the more mature yield focused
investments as we look to redeploy cash into more growth focused
investments in line with the VCT guidelines.
Downing LLP
Investment Adviser's Report - Quoted Growth Portfolio
Investment activity
At 31 March 2022 the quoted portfolio was valued at GBP26.7
million, comprising 34 active investments. Over the year, the
quoted portfolio produced unrealised gains of GBP1.3 million,
reflecting a 13.4% increase over the period against the FTSE AIM
All Share that fell 13.0%.
Equity markets began a tentative recovery from the pandemic in
the earlier part of the reporting period as pandemic restrictions
were gradually eased. However, markets remained nervous over the
rapid spread of Covid variants. As the year progressed, many
companies experienced more normalised trading conditions but fears
around higher inflation and interest rates were evident. Volatility
remained a persistent feature towards the end of the year and
sentiment was dampened by the discovery of a more virulent strain
of Covid.
The beginning of 2022 was characterised by an aggressive market
rotation from growth to value, and from small and mid-cap names
into the perceived safety of larger capitalisation businesses.
Sentiment shifted considerably too, with the tech sector falling as
investors switched into previously unloved sectors as mounting
concern over rising inflation and interest rates gripped
markets.
At the end of the reporting period, news flow was dominated by
the crisis in Ukraine. Equity market volatility is likely to
continue for some time as the consequences of the conflict in the
region become clearer. Markets face undoubted headwinds, not only
the impact of the Russian invasion, but widespread Covid lockdowns
in China, persistent supply chain disruptions, and rising interest
rates. The threat of recession and possibility that we could be
entering a prolonged bear market is also weighing on investor
sentiment.
The quoted portfolio saw increased trading activity during the
period, with eight purchases, all VCT qualifying. There were five
new investments made into Trellus Health plc, Eneraqua Technologies
plc, Libertine Holdings plc, Strip Tinning Holdings plc and Verici
DX plc, and three follow on investments into GENinCode plc,
Feedback plc and Deepmatter Group plc.
GENinCode was originally an unlisted position in the portfolio,
however, confidence in the management team led the Adviser to also
participate further in the IPO of this investment.
There were two corporate actions in the period: the successful
exit of Universe Group plc, which was acquired by private equity.
Universe was acquired by PDI software, a global provider of
enterprise management software in January 2022 at a valuation of
12p per share a 7p per share premium to the share price before the
announcement. This reflected a successful exit for the quoted
growth portfolio, realising a gain of GBP1.9 million over cost,
being a realised gain over opening value of GBP2.1 million and a
money multiple return of 2.3x. Downing client funds held a 16.67%
equity position in Universe and were actively engaged with the
strategy of the company. This acquisition is evidence of the
Adviser's successful private-equity approach to investing in public
markets.
In addition, net proceeds of GBP5,000 were realised from the
wind-up of the Downing UK Micro-Cap Growth Fund.
The most notable unrealised movements in the portfolio over the
period are discussed below.
Portfolio Movements
The main positive contributor to performance was Tracsis plc,
which increased the value of the portfolio by GBP2.6 million.
Tracsis, a leading provider of software, hardware, data
analytics/GIS and services for the rail, traffic data and wider
transport industries. The group's latest results, for the six
months ended 31 January 2022, were in line with management's
expectations. Highlights included revenue increased by 31% to
GBP29.2m, with significant growth in the Data, Analytics,
Consultancy and Events Division, including post-Covid recovery. The
Rail Technology and Services Division revenue was at a similar
level to prior year and a recent multi-year Rail Technology
software contract wins will drive future revenue. The UK rail
industry's transition to a new Great British Railways structure is
ongoing and the overall objective is to create a data-driven,
customer-focused, safety-critical future for the industry. Tracsis'
range of rail technology products and services is well placed to
help the rail industry deliver its strategic goals and as a result
the business has been asked to actively participate in helping to
shape future decision making. The recent acquisition of RailComm is
an important strategic development for Tracsis, providing a
platform onto which the group can start to internationally expand
its rail product portfolio via direct access to the significant and
growing North American rail technology market.
GENinCode plc, the predictive genetics company focused on the
prevention of cardiovascular disease, also made a positive
contribution to the portfolio, delivering an unrealised gain of
GBP282,000.
In March, the group announced a collaboration with the Academic
Health Science Network for the Northeast and North Cumbria to pilot
the use of its Lipid inCode(R) test for the diagnosis of
hypercholesterolemia (high levels of cholesterol) and familial
hypercholesterolemia. The group has a vision to assist clinicians
and inform patients in interpreting cardiovascular risk, and to
improve public health using the predictive capability of genomics.
High genetic risk patients are assisted in making lifestyle choices
and can receive targeted treatment to improve outcomes. Over the
past 15 years GENinCode has made a substantial investment in its
research, bioinformatic data, technology, and product development
to assess disease risk, in order to help clinicians and patients
prevent the onset of CVD.
GENinCode also announced its collaboration with the Indiana
University School of Medicine (IU). IU is the largest medical
school in the US and will undertake a 'Proof of Concept' study
using Cardio inCode-SCORE for the risk assessment of patients for
onset of atherosclerotic cardiovascular disease ("ASCVD"). ASCVD
accounts for over 85% of all cardiovascular disease deaths and is
the leading cause of morbidity and mortality in the US and
globally.
Downing Strategic Micro Cap Investment Trust plc (DSM), was a
negative contributor, reducing the value of the quoted portfolio by
GBP318,000. This negative share price movement was despite the
positive results for the full year ended 28 February 2022. The
Company reported a 5.3% increase in NAV, and 1% increase in the
share price, despite the volatility in markets due to the
post-Covid macroeconomic backdrop and the conflict in Ukraine. The
managers remain positive on the prospects for the Company's
holdings which are generally cheaper than the wider market, with
stronger balance sheets and good growth prospects from the
compelling products or services they provide. Typically, these
investments have gone through significant catalytic changes over
the last few years and are therefore stronger than they were pre
this period of economic instability.
Strategically, the managers continue to be active, ensuring that
portfolio businesses are well positioned to grow over the long term
with the right operating structure and management in place. If
conditions and prices are right, they may exit positions. Cash
remains around 10% and the uncertain environment is generating
ample opportunities for new investments. The DSM portfolio consists
of value stocks, dynamically managed with strong balance sheets,
appropriate to the foreseeable economy and held at modest
valuations. Their quoted prices are significantly below the value
at which the managers, using conservative estimates and noting
evident catalysts, place their achievable market value.
Inland Homes plc was also a negative contributor, reducing the
value of the portfolio by GBP315,000. Inland Homes is a brownfield
developer, housebuilder and regeneration specialist focused on the
South and Southeast of England. The group's most recently published
results for the year ended 30 September 2021, reported record
revenue, a significant reduction in net debt and growth in its
asset management, partnership housing and private housebuilding
divisions. Management stated that the results are underpinned by
the group's attractive portfolio of brownfield and longer-term
strategic land opportunities. Located across the South and
Southeast of England, it is this valuable portfolio, together with
its planning and housebuilding expertise, which drives demand from
third-party investors, build to rent operators, registered
providers, and other housebuilders. The underlying strength of the
housing market and the shortfall in new housing delivery will
continue to support demand for the land Inland owns and the homes
they build.
Outlook
The ramifications of the pandemic continued to disrupt
throughout the reporting period, and markets have been faced with
extreme demand side shocks, extreme supply side shocks, labour
shortages, energy price crises, and freight and logistical
challenges. The macroeconomic backdrop remains concerning and
markets are likely to remain volatile in the months ahead as rising
inflation and higher interest rates cause concern.
The year ahead is likely to be more difficult than last year,
where lingering Covid issues were offset by massive stimulus and
record household savings feeding a demand spike. Supply chain
issues continue to have an impact, Covid is still crippling parts
of China where so many goods are manufactured, household savings
are being rapidly eroded by the unforeseen cost of living crisis,
and expansionary policy has reversed. Confidence is low and
uncertainty is high. However, the quoted portfolio contains good
companies, with strong balance sheets and significant prospects for
growth over the long-term.
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 2022:
Total
value of
other
% of Loan stock funds also
Valuation portfolio interest recognised managed by
movement by in the Downing
Cost Valuation in year value period LLP
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Quoted growth investments
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Tracsis plc* 1,443 7,552 2,620 7.1% - 5,844
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Downing Strategic Micro-Cap Investment
Trust plc*** 5,197 3,498 (318) 3.3% - 3,366
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Anpario plc* 1,448 3,340 (62) 3.1% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Impact Healthcare REIT plc*** 1,518 1,773 142 1.7% - 1,138
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Craneware plc* 353 1,261 (312) 1.2% - 1,886
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Inland Homes plc* 1,311 1,153 (315) 1.1% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
GENinCode plc* 800 1,082 282 1.0% - 1,624
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Cohort plc* 394 840 (308) 0.8% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Angle plc* 570 768 141 0.7% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Pittards plc* 1,350 697 203 0.7% - 421
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Vianet Group plc* 756 669 (24) 0.6% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Immotion Group plc* 500 546 (61) 0.5% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Brooks Macdonald Group plc* 257 445 82 0.4% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Libertine Holdings plc* 350 444 95 0.4% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Feedback plc* 400 302 (148) 0.3% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Deepmatter plc* 463 274 (307) 0.3% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Verici DX plc* 240 219 (21) 0.2% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Oncimmune Holdings plc* 278 201 (97) 0.2% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Norman Broadbent plc* 906 196 45 0.2% - 514
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Frontier IP Group plc* 30 191 29 0.2% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
EnerAqua Technology plc* 195 186 (9) 0.2% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Pennant International Group plc* 335 161 (28) 0.2% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
One Media Group IP plc* 175 156 (19) 0.1% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
SysGroup plc* 377 144 (94) 0.1% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Pelatro plc* 289 136 (95) 0.1% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Bonhill Group plc* 1,000 94 (56) 0.1% - 758
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Strip Tinning Holdings plc* 105 85 (20) 0.1% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Trellus Health plc* 175 83 (92) 0.1% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Dillistone Group plc* 411 71 (3) 0.1% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Pressure Technologies plc* 249 62 3 0.0% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Fireangel Safety Technology Group plc* 545 49 (1) 0.0% - 3,787
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Wheelsure Holdings plc** 48 4 (1) 0.0% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
MI Downing UK Micro-Cap Growth
Fund*** 2 2 1 0.0% - 152
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
AIQ Limited - 1 (1) 0.0% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Flowgroup plc 207 - - 0.0% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
ACHP plc* 61 - - 0.0% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Golden Rock Global plc*** - - (1) 0.0% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Unquoted growth investments
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
E-Fundamentals (Group) Limited 1,508 3,847 1,272 3.6% 2 1,533
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Carbice Corporation 3,020 2,967 137 2.8% - 1,639
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
StorageOS Inc 2,970 2,921 134 2.7% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Ayar Labs, Inc 1,280 2,594 1,359 2.4% - 3,510
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Trinny London Limited 443 2,508 573 2.3% - 14,401
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Cornelis Networks Inc 2,102 2,056 95 1.9% - 3,936
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Virtual Class Limited 1,164 1,912 (62) 1.8% - 1,816
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Rated People Ltd 1,382 1,895 211 1.8% - 4,228
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Imagen Limited 1,000 1,763 (65) 1.7% - 3,612
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Hummingbird Technologies Limited 2,250 1,750 (502) 1.6% - 250
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Hackajob Limited 784 1,523 739 1.4% - 5,731
--------------------------------------- ------- ---------- ---------- ---------- -------------------- ------------
Parsable Inc 1,532 1,422 65 1.3% - 2,004
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Cambridge Touch Technologies Limited 959 1,369 507 1.3% - 4,704
Glisser Limited 1,300 1,300 - 1.2% - 5,878
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Ecstase Limited 1,000 1,257 257 1.2% - 2,515
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Maestro Media Limited 1,000 1,160 160 1.1% - 4,134
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Upp Technologies Group Limited 1,077 1,077 835 1.0% - 1,077
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Firefly Learning Limited 1,047 1,047 - 1.0% - 2,271
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Limitless Technology Limited 757 920 - 0.9% - 2,897
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
FundingXchange Limited 1,050 786 (264) 0.7% - 1,835
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
DSTBTD Limited 775 775 - 0.7% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Bulbshare Limited 749 749 - 0.7% - 749
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Vivacity Labs Limited 500 669 169 0.6% - 3,642
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Masters of Pie Limited 667 667 - 0.6% - 2,304
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Cambridge Respiratory Innovations
Limited 500 500 - 0.5% - 2,000
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
FVRVS Limited 375 484 109 0.5% 8 -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Channel Mum Limited 737 291 (50) 0.3% 2 291
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
DiA Imaging Analysis Limited 208 214 6 0.2% - 928
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
MIP Discovery Limited 225 150 (75) 0.1% - 1,256
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
StreetHub Limited 1,446 79 (1,431) 0.1% 2 71
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Empiribox Holdings Limited 1,813 - (606) 0.0% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Lignia Wood Company Limited 1,778 - - 0.0% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Live Better With Limited 990 - - 0.0% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Lineten Limited 750 - (392) 0.0% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Ludorum plc 177 - (7) 0.0% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Resource Reserve Recovery Limited 6 - - 0.0% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Unquoted yield focused investments
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Doneloans Limited 3,631 4,213 (135) 3.9% 378 -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Baron House Developments LLP 2,695 4,177 943 3.9% 443 7,113
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Harrogate Street LLP 1,400 2,778 721 2.6% 72 2,876
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Data Centre Response Limited 558 1,787 471 1.7% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Cadbury House Holdings Limited 3,081 1,688 (113) 1.6% 102 791
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Kimbolton Lodge Limited 664 996 30 0.9% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Fenkle Street LLP 346 911 39 0.9% 52 13,422
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Pilgrim Trading Limited 2,593 778 (1,275) 0.7% 1,228 519
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Downing Pub EIS ONE Limited 490 668 100 0.6% - 7,120
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
SF Renewables (Solar) Limited 422 278 (41) 0.3% - 4,252
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Rockhopper Renewables Limited 738 156 (122) 0.1% - 1,599
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Pearce & Saunders Limited 1,122 117 (133) 0.1% - 150
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Pearce & Saunders DevCo Limited 84 70 (12) 0.1% - 89
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Yamuna Renewables Limited 2,500 - - 0.0% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Jito Trading Limited 2,500 - - 0.0% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Quadrate Catering Limited 1,500 - - 0.0% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Top Ten Holdings plc 399 - - 0.0% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Quadrate Spa Limited 372 - - 0.0% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
London City Shopping Centre Limited 110 - - 0.0% - -
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Total investments 87,264 85,954 4,897 80.5% 2,289 136,633
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
Cash at bank and in hand 20,856 19.5%
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
106,810 100%
--------------------------------------- ------- ---------- ---------- ---------- -------------------- -----------
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 continue 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 2022:
-- 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
-- VT Downing Listed Infrastructure Income Fund
-- Downing Healthcare EIS Knowledge Intensive Fund
-- Downing Renewables EIS
-- Downing Indian Solar EIS
-- Downing Ventures EIS
-- Downing Pub EIS
Investment movements for the year ended 31 March 2022
Additions
GBP'000
------------------------------------------ -------
Quoted growth investments
------------------------------------------ -------
Libertine Holdings plc 350
------------------------------------------ -------
Verici DX plc 240
------------------------------------------ -------
GENinCode plc 200
------------------------------------------ -------
EnerAqua Technology plc 195
------------------------------------------ -------
Trellus Health plc 175
------------------------------------------ -------
Feedback plc 150
------------------------------------------ -------
Deepmatter Group plc 113
------------------------------------------ -------
Strip Tinning Holdings plc 105
------------------------------------------ -------
1,528
------------------------------------------ -------
Unquoted growth investments
------------------------------------------ -------
DSTBTD Limited 775
------------------------------------------ -------
Bulbshare Limited 749
------------------------------------------ -------
Cambridge Touch Technologies Limited 500
------------------------------------------ -------
Cambridge Respiratory Innovations Limited 250
------------------------------------------ -------
DiA Imaging Analysis Limited 208
------------------------------------------ -------
E-Fundamentals (Group) Limited 166
------------------------------------------ -------
FVRVS Limited 125
------------------------------------------ -------
Rated People Limited 100
------------------------------------------ -------
StreetHub Limited 80
------------------------------------------ -------
MIP Discovery Limited 75
------------------------------------------ -------
Channel Mum Limited 63
------------------------------------------ -------
3,091
------------------------------------------ -------
4,619
------------------------------------------ -------
Disposals
Loan stock
interest
Profit/ Realised recognised
(loss) in
Value at vs gain/ the
Cost 01/04/21* Proceeds cost (loss) period
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- -------------- ----------------- -------- ------- -------- ----------
Quoted growth
investments
-------------------- -------------- ----------------- -------- ------- -------- ----------
Universe Group plc 1,506 1,276 3,403 1,897 2,127 -
-------------------- -------------- ----------------- -------- ------- -------- ----------
MI Downing UK
Micro-Cap Growth
Fund 6 4 5 (1) 1 -
-------------------- -------------- ----------------- -------- ------- -------- ----------
1,512 1,280 3,408 1,896 2,128 -
-------------------- -------------- ----------------- -------- ------- -------- ----------
Unquoted growth investments (including loan note
redemptions)
------------------------------------------------------- -------- ------- -------- ----------
Xupes Limited 2,250 459 1,613 (637) 1,154 -
-------------------- -------------- ----------------- -------- ------- -------- ----------
Curo Compensation
Limited 1,663 1,095 1,604 (59) 509 50
-------------------- -------------- ----------------- -------- ------- -------- ----------
Avid Technology
Group Limited 1,833 - 429 (1,404) 429 77
-------------------- -------------- ----------------- -------- ------- -------- ----------
BridgeU Corporation - - 143 143 143 -
-------------------- -------------- ----------------- -------- ------- -------- ----------
JRNI Limited 525 525 548 23 23 -
-------------------- -------------- ----------------- -------- ------- -------- ----------
Glownet Limited 741 - - (741) - -
-------------------- -------------- ----------------- -------- ------- -------- ----------
Exonar Limited 550 379 - (550) (379) -
-------------------- -------------- ----------------- -------- ------- -------- ----------
7,562 2,458 4,337 (3,225) 1,879 127
-------------------- -------------- ----------------- -------- ------- -------- ----------
Unquoted yield focused investments (including loan
note redemptions)
------------------------------------------------------- -------- ------- -------- ----------
Pearce and Saunders
Limited 88 88 352 264 264 -
-------------------- -------------- ----------------- -------- ------- -------- ----------
Ironhide Generation
Limited 920 - 4 (916) 4 -
-------------------- -------------- ----------------- -------- ------- -------- ----------
Indigo Generation
Limited 920 - 4 (916) 4 -
-------------------- -------------- ----------------- -------- ------- -------- ----------
Doneloans Limited 1,370 1,370 1,370 - - -
-------------------- -------------- ----------------- -------- ------- -------- ----------
The Thames Club
Limited 175 - - (175) - -
-------------------- -------------- ----------------- -------- ------- -------- ----------
Fresh Green Power
Limited 378 564 556 178 (8) -
-------------------- -------------- ----------------- -------- ------- -------- ----------
Green Energy
Production UK
Limited 200 133 125 (75) (8) -
-------------------- -------------- ----------------- -------- ------- -------- ----------
Nomansland Biogas
Limited 1,300 1,300 1,279 (21) (21) -
-------------------- -------------- ----------------- -------- ------- -------- ----------
Downing Care Homes
Holdings Limited 3,880 5,526 5,006 1,126 (520) 1,769
-------------------- -------------- ----------------- -------- ------- -------- ----------
9,231 8,981 8,696 (535) (285) 1,769
-------------------- -------------- ----------------- -------- ------- -------- ----------
18,305 12,719 16,441 (1,864) 3,722 1,896
-------------------- -------------- ----------------- -------- ------- -------- ----------
* 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 is responsible for ensuring
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 2022
Year ended 31 March 2022 Year ended 31 March 2021
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- ------- ------- ------- -------- -------- --------
Income 4,584 - 4,584 1,333 - 1,333
----------------- ------- ------- ------- -------- -------- --------
Gains on
investments - 8,619 8,619 - 7,402 7,402
----------------- ------- ------- ------- -------- -------- --------
4,584 8,619 13,203 1,333 7,402 8,735
---------------- ------- ------- ------- -------- -------- --------
Investment
management
fees (1,051) (1,051) (2,102) (817) (817) (1,634)
----------------- ------- ------- ------- -------- -------- --------
Other expenses (705) - (705) (900) - (900)
----------------- ------- ------- ------- -------- -------- --------
Return/(loss)
on ordinary
activities
before tax 2,828 7,568 10,396 (384) 6,585 6,201
----------------- ------- ------- ------- -------- -------- --------
Tax on total
comprehensive
income and
ordinary
activities (300) 300 - (232) 232 -
----------------- ------- ------- ------- -------- -------- --------
Return/(loss)
attributable
to equity
shareholders 2,528 7,868 10,396 (616) 6,817 6,201
----------------- ------- ------- ------- -------- -------- --------
Basic and
diluted
return/(loss)
per share 1.4 4.5 5.9 (0.4) 4.4 4.0
----------------- ------- ------- ------- -------- -------- --------
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 April 2021 by the
Association of Investment Companies ("AIC SORP").
Statement of Changes in Equity
for the year ended 31 March 2022
Called Funds held in
up Capital respect of Capital
Share redemption Share shares Special reserve Revaluation Revenue
Capital reserve premium account not yet allotted reserve realised reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- -------- ----------- ---------------- ----------------- -------- --------- ----------- -------- -------
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
--------------------- -------- ----------- ---------------- ----------------- -------- --------- ----------- -------- -------
For the year ended 31 March 2022
-------------------------------------------- ---------------- ----------------- -------- --------- ----------- -------- -------
At 1 April 2021 1,611 1,649 66,430 7,545 20,238 - 6,409 (2,529) 101,353
--------------------- -------- ----------- ---------------- ----------------- -------- --------- ----------- -------- -------
Total comprehensive
income - - - - - 2,971 4,897 2,528 10,396
--------------------- -------- ----------- ---------------- ----------------- -------- --------- ----------- -------- -------
Realisation of
revaluations from
previous years* - - - - - 794 (794) - -
--------------------- -------- ----------- ---------------- ----------------- -------- --------- ----------- -------- -------
Realisation of
impaired
valuations - - - - - (791) 791 - -
--------------------- -------- ----------- ---------------- ----------------- -------- --------- ----------- -------- -------
Transfer between
reserves* - - - (738) 738 - - -
--------------------- -------- ----------- ---------------- ----------------- -------- --------- ----------- -------- -------
Transactions with
owners
--------------------- -------- ----------- ---------------- ----------------- -------- --------- ----------- -------- -------
Dividends paid - - - - - (3,712) - (743) (4,455)
--------------------- -------- ----------- ---------------- ----------------- -------- --------- ----------- -------- -------
Utilised in share
issue - - - (7,545) - - - - (7,545)
--------------------- -------- ----------- ---------------- ----------------- -------- --------- ----------- -------- -------
Unallotted shares - - - 78 - - - - 78
--------------------- -------- ----------- ---------------- ----------------- -------- --------- ----------- -------- -------
Issue of new shares 213 - 12,605 - - - - - 12,818
--------------------- -------- ----------- ---------------- ----------------- -------- --------- ----------- -------- -------
Share issue costs - - - - (360) - - - (360)
--------------------- -------- ----------- ---------------- ----------------- -------- --------- ----------- -------- -------
Purchase of own
shares** (48) 48 - - (2,812) - - - (2,812)
--------------------- -------- ----------- ---------------- ----------------- -------- --------- ----------- -------- -------
At 31 March 2022 1,776 1,697 79,035 78 16,328 - 11,303 (744) 109,473
--------------------- -------- ----------- ---------------- ----------------- -------- --------- ----------- -------- -------
* A transfer of GBP794,000 representing previously recognised unrealised gains on disposal of investments during the year ended 31 March 2022 (2021: losses of GBP1,735,000) has been made from the Revaluation reserve to the Capital Reserve-realised. A transfer of GBP738,000 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 (2021: GBP12.2 million) has been made from the Special reserve to the Capital Reserve -- realised.
** These shares were subsequently cancelled.
Balance Sheet
as at 31 March 2022
2022 2021
GBP'000 GBP'000
--------------------------------------------------- ------- -------
Fixed assets
--------------------------------------------------- ------- -------
Investments 85,954 89,157
----------------------------------------------------- ------- -------
Current assets
--------------------------------------------------- ------- -------
Debtors 3,300 2,001
----------------------------------------------------- ------- -------
Cash at bank and in hand 20,856 10,738
----------------------------------------------------- ------- -------
24,156 12,739
--------------------------------------------------- ------- -------
Creditors: amounts falling due within one year (637) (543)
----------------------------------------------------- ------- -------
Net current assets 23,519 12,196
----------------------------------------------------- ------- -------
Net assets 109,473 101,353
----------------------------------------------------- ------- -------
9B9Capital and reserves
--------------------------------------------------- ------- -------
Called up share capital 1,776 1,611
----------------------------------------------------- ------- -------
Capital redemption reserve 1,697 1,649
----------------------------------------------------- ------- -------
Share premium account 79,035 66,430
----------------------------------------------------- ------- -------
Funds held in respect of shares not yet allotted 78 7,545
----------------------------------------------------- ------- -------
Special reserve 16,328 20,238
----------------------------------------------------- ------- -------
Revaluation reserve 11,303 6,409
----------------------------------------------------- ------- -------
Revenue reserve (744) (2,529)
----------------------------------------------------- ------- -------
Total equity shareholders' funds 109,473 101,353
----------------------------------------------------- ------- -------
Basic and diluted net asset value per share 61.6p 58.2p
----------------------------------------------------- ------- -------
Cash Flow Statement
for the year ended 31 March 2022
2022 2021
GBP'000 GBP'000
------------------------------------------------------ ------- --------
Cash flow from operating activities
------------------------------------------------------ ------- --------
Gain/(loss) on ordinary activities after taxation 10,396 6,201
------------------------------------------------------- ------- --------
(Gain)/loss on investments (8,619) (7,402)
------------------------------------------------------- ------- --------
(Increase) in debtors (1,298) (57)
------------------------------------------------------- ------- --------
Increase in creditors 72 25
------------------------------------------------------- ------- --------
Net cash generated from/(used in) operating activities 551 (1,233)
------------------------------------------------------- ------- --------
Cash flow from investing activities
------------------------------------------------------ ------- --------
Purchase of investments (4,619) (21,403)
------------------------------------------------------- ------- --------
Proceeds from disposal of investments 16,441 3,238
------------------------------------------------------- ------- --------
Net cash inflow/(outflow) from investing activities 11,822 (18,165)
------------------------------------------------------- ------- --------
Cash flows from financing activities
------------------------------------------------------ ------- --------
Proceeds from share issue 12,121 11,933
------------------------------------------------------- ------- --------
Funds held in respect of shares not yet allotted (7,467) 1,770
------------------------------------------------------- ------- --------
Share issue costs (360) (286)
------------------------------------------------------- ------- --------
Purchase of own shares (2,791) (1,612)
------------------------------------------------------- ------- --------
Equity dividends paid (3,758) (5,140)
------------------------------------------------------- ------- --------
Net cash (outflow)/inflow from financing activities (2,255) 6,665
------------------------------------------------------- ------- --------
Increase/(decrease) in cash 10,118 (12,733)
------------------------------------------------------- ------- --------
Net movement in cash
------------------------------------------------------ ------- --------
Beginning of year 10,738 23,471
------------------------------------------------------- ------- --------
Net cash (outflow)/inflow 10,118 (12,733)
------------------------------------------------------- ------- --------
End of year 20,856 10,738
------------------------------------------------------- ------- --------
Notes
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 in April 2021
("SORP").
The financial statements are presented in Sterling (GBP) 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 continue 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.
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 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. 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").
A price sensitivity analysis of the unquoted investments is
provided in the Annual Report.
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 accruals 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
Dividend's 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
2022 2021
GBP'000 GBP'000
----------------------------------------------- ----------- -----------
Return per share based on:
----------------------------------------------- ----------- -----------
Net revenue gain/(loss) for the financial year 2,528 (616)
----------------------------------------------- ----------- -----------
Net capital gain for the financial year 7,868 6,817
----------------------------------------------- ----------- -----------
Total gain for the financial year 10,396 6,201
----------------------------------------------- ----------- -----------
Weighted average number of shares in issue 177,473,899 156,403,594
----------------------------------------------- ----------- -----------
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.
During the period the Bank of England base rate has increased
from 0.1% per annum to 0.75% per annum at the period end. Following
the period end, in May 2022, the rate increased further, to 1.0%
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 US Dollars. This has resulted in an unrealised foreign
exchange loss of GBP511,000 (2021: GBP735,000) 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 2022, of the loan stock classified as "past due",
GBP911,000 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 2022, of the loan stock classified as "past due",
GBP6,760,000 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,
GBP874,000 falls within the banding of nil to 2 years past due and
GBP5.9 million is 2 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 2021, of the loan stock classified as "past due",
GBP1,931,000 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 2021, of the loan stock classified as "past due",
GBP7,328,000 related to the principal of loan notes where the
principal had passed its maturity date. As at 31 March 2021, the
extent to which the principal is past its maturity date, GBP5.0
million falls within the banding of nil to 2 years past due and
GBP2.3 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 2021 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 (2022:
GBP637,000, 2021: GBP543,000) 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 (2021: nil).
Further related party transactions include Investment Adviser
and Administration fees payable to Downing LLP, Downing LLP was
also paid promoter fees in connection with the fundraising offer
that was open during the period, which totalled GBP276,000 for the
year ended 31 March 2022 (2021: GBP206,000).
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 2022, GBP192,000 (2021: GBP172,000) 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 2022 but has been extracted from the statutory financial
statements for the year ended 31 March 2022 which were approved by
the Board of Directors on 7 July 2022 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 2021 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 2022 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.downing.co.uk.
(END) Dow Jones Newswires
July 07, 2022 13:29 ET (17:29 GMT)
Copyright (c) 2022 Dow Jones & Company, Inc.
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