DDV1 Downing One Vct Plc

Annual Financial Report

DOWNING ONE VCT PLCLEI: 213800R88MRC4Y3OIW867 July 2022Final Results for the year ended 31 March 2022

		Audited		Audited
		31 Mar		31 Mar
		2022		2021
		Pence		Pence
Net asset value per share (“NAV”)		61.60		58.20
Cumulative dividends paid since 12 November 2013		41.25		38.75
Total Return (net asset value plus cumulative dividends paid per share)		102.85		96.95
Dividends in respect of financial year
Interim dividend per share		1.25		1.25
Proposed final dividend per share		1.25		1.25
		2.50		2.50

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 ArrangementsIn 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 £548,000.

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 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 £10.4 million comprising a revenue gain of £2.5 million and a capital gain of £7.9 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 £16.4 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 £5.0 million were received, which resulted in a gain over original cost of £1.1 million. Additionally, the investment regularly provided a yield across its lifetime and received a further £1.8 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 £3.4 million. This represented a successful exit for the Company, resulting in a gain over cost of £1.9 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 £26.7 million (31.0% of the portfolio, excluding cash). The 36 unquoted growth investments have a value of £40.7 million and represent 47.3% of the portfolio and the 20 unquoted yield focused investments have a value of £18.6 million and represent 21.7% of the portfolio.

The year under review saw total unrealised gains of £4.9 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 £3.2 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 £1.3 million, with a significant contribution from Tracsis plc.

The yield focused portfolio produced unrealised gains of £473,000 over the year, plus income of £4.0 million.

Further details on the investment activity and performance are included in the Investment Adviser’s Reports below.

DividendsDowning 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

FundraisingThe Company launched a small top up offer for subscription during November 2021. The offer was closed on 29 April 2022 having raised £1.9 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 investingThe 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 buybacksThe 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 QualificationAt 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 above͖; and
• two in respect of the authority to allot shares.

The authority to allot shares provides the Board with the opportunity to consider raising further funds without having to necessarily incur the expense of seeking separate approval via a shareholder circular. Any further fundraising decisions will take account of the level of uninvested funds and the rate of investment.

OutlookThe 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 KayChairman

Investment Adviser’s Report - Overview

IntroductionWe 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 OverviewAt 31 March 2022, the Company held a portfolio with a value of £86.0 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 £16.4 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 £4.6 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 PerformanceThe performance of the portfolio over the year has produced an unrealised gain of £4.9 million (2021: £7.6 million), with the unquoted portfolio generating an unrealised gain of £3.6 million and the quoted portfolio generating an unrealised gain of £1.3 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 £3.2 million. £1.2 million of unrealised gains have also been recorded in the quoted growth portfolio and £472,000 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 (£2.6 million) and GENinCode plc (£282,000). 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 (£1.4 million), as well as E-Fundamentals (Group) Limited (£1.3 million). These gains were partially offset by unrealised losses, most notably to StreetHub Limited (trading as Trouva) (£1.4 million) which sits in the unquoted growth portfolio and Pilgrim Trading Limited (£1.3 million), which sits in the unquoted yield focused portfolio, although it should be noted that the loss on Pilgrim was offset by £1.2 million of loan stock interest recognised during the period.

Realised gains, over carrying value, in the period totalled £3.7 million, representing a realised loss over cost of £1.9 million. The most notable gains over carrying value were quoted growth company Universe Group plc (gain of £2.1 million) and unquoted growth company Xupes Limited (gain of £1.2 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 £520,000 following the full exit towards the period end. However it should be noted that this represented a gain over original cost of £1.1 million, in addition to the receipt of interest income of over £1.8 million.

Further details on these and other movements can be found within the quoted and unquoted Investment Adviser Reports.

Income splitAs at 31 March 2022, the Company received income of £4.6 million (2021: £1.3 million). £4.2 million (2021: £939,000) of this balance related to loan stock interest, which significantly increased year on year following the receipt of £1.8 million from Downing Care Homes Holdings Limited upon exit and £381,000 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 £399,000, remaining relatively consistent with the prior period receipts of £357,000.

Portfolio CompositionWith 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 £2.6 million.

The most notable new investment into this sector was DSTBTD Limited (£775,000), 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 £16.4 million, at the period end, the Company held £20.9 million in cash, which is expected to be deployed into supporting the existing portfolio as well any new investment opportunities as they arise.

OutlookThe 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 £59.3 million. 36 of these with a value of £40.7 million are unquoted growth companies and 20 are unquoted yield focused companies with a value of £18.6 million.

Unquoted GrowthInvestment activity During the period, there was a high level of realisation and investment activity with £4.3 million of proceeds generated from exits and a total of £3.1 million invested into unquoted growth companies.

Three new investments were added to the unquoted growth portfolio:

DSTBTD Limited (£775,000) (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 (£749,000) 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 (£208,000) 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 £1.4 million were made into eight companies, most notably Cambridge Touch Technologies Limited (£500,000), Cambridge Respiratory Limited (£250,000) and E-Fundamentals (Group) Limited (£166,000).

Details of the investment realisations during the year are set out below. Total proceeds of £4.3 million were generated from 7 investments, producing a gain over holding value of £1.9 million, although representing a loss over cost of £3.2 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 £1.6 million, resulting in a gain over the opening value of £1.2 million, however a loss over cost of £637,000.

Curo Compensation Limited, the provider of a human resources software service, was sold in the period, generating proceeds of £1.6 million, resulting in a loss over cost of £59,000, although this was a gain over the previous holding value of £509,000.

Avid Technology Group Limited, a manufacturer of electrified ancillary equipment for internal combustion engines was sold during the period, generating proceeds of £429,000. The investment had previously been fully provided against, so this represented a gain of £429,000 in the period, although it should be noted that this was a disappointing overall loss against the original cost of £1.4 million.

Further deferred consideration was received from BridgeU Limited in relation to the exit in 2021, producing further proceeds of £143,000 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 £23,000.

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 £1.3 million and a realised loss over carrying value of £379,000.

Portfolio valuation The unquoted portfolio, on the whole, performed well over the period, resulting in a total unrealised gain of £3.6 million in the period, including unrealised foreign exchange gains of £511,000. £472,000 of the £3.6 million gain was recognised within the unquoted yield focus portfolio, further detail can be found below. The remaining £3.1 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 £1.4 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 £1.3 million as at the year end.

Upp Technologies Limited, a provider of multichannel e-commerce technology, was increased in value by £835,000 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 £739,000 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 £282,000 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 £1.4 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 £606,000 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 £502,000 as a result of a reduction in revenue forecasts.

Unquoted Yield FocusedInvestment activity During the period, the Company made no new investments into this portfolio, however it generated total proceeds of £8.7 from disposals, producing a loss of £285,000 over opening value and a £535,000 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 £5.0 million, resulting in a loss over holding value of £520,000, although it should be noted that this represented a gain over original cost of £1.1 million, in addition to loan interest proceeds received during the period of £1.8 million.

Pearce and Saunders Limited, the owner of a freehold pub in South East London, repaid loan note principal of £88,000 during the period, along with a redemption premium of £264,000.

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 £1.4 million, and associated interest of £381,000.

Nomansland Biogas Limited, an anaerobic digestion plant in Devon, was fully exited during the period, resulting in a minor loss of £21,000 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 £1.8 million, although representing a minor realised gain over carrying value of £8,000.

Portfolio valuation The unquoted yield focused portfolio experienced a mixed year with the overall unrealised movement producing a gain of £472,000. 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 £900,000.

Harrogate Street LLP, a property developer was uplifted by over £700,000 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 £1.3 million, but this was offset by the recognition of £1.2 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 £135,000 in line with the company’s net assets as at 31 March 2022.

Conclusion and outlookThe 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 activityAt 31 March 2022 the quoted portfolio was valued at £26.7 million, comprising 34 active investments. Over the year, the quoted portfolio produced unrealised gains of £1.3 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 £1.9 million over cost, being a realised gain over opening value of £2.1 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 £5,000 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 MovementsThe main positive contributor to performance was Tracsis plc, which increased the value of the portfolio by £2.6 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 £29.2m, 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 £282,000.

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® 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 £318,000. 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 £315,000. 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.

OutlookThe 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 investmentsThe following investments, all of which are incorporated in England and Wales, were held at 31 March 2022:

	Cost	Valuation	Valuationmovementin year	% ofportfolioby value	Loan stock interest recognised in the period	Total value of other funds also managed by Downing LLP
	£’000	£’000	£’000		£’000		£’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

	£’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
			Value at				(loss) vs	gain/	in the
	Cost		01/04/21*	Proceeds			cost	(loss)	period
	£’000		£’000	£’000			£’000	£’000	£’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 statementThe 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 Statementfor the year ended 31 March 2022

		Year ended 31 March 2022				Year ended 31 March 2021
		Revenue	Capital	Total		Revenue	Capital	Total
		£’000	£’000	£’000		£’000	£’000	£’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 Equityfor the year ended 31 March 2022

	Called up Share Capital	Capital redemptionreserve	Sharepremium account	Funds held in respect of shares not yet allotted	Specialreserve	Capitalreserverealised	Revaluationreserve	Revenuereserve	Total
	£’000	£’000	£’000	£’000	£’000	£’000	£’000	£’000	£’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 £794,000 representing previously recognised unrealised gains on disposal of investments during the year ended 31 March 2022 (2021: losses of £1,735,000) has been made from the Revaluation reserve to the Capital Reserve-realised. A transfer of £738,000 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: £12.2 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
			£’000		£’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
		£’000		£’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 informationDowning 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 policiesBasis of accountingThe 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 (£) and rounded to thousands.

Going concernAfter 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 statementIn 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.

InvestmentsVenture 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 uncertaintyThe 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.

ExpensesAll 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.

TaxationThe 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 equivalentsCash 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 creditorsOther debtors (including accrued income) and other creditors are included within the accounts at amortised cost.

Share issue costsShare issue costs have been deducted from the special reserve account.

Segmental reportingThe Company only has one class of business and one market.

Dividends payableDividend’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 allottedCash 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
	£’000		£’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 RisksThe 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 risksAs 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 riskInvestment 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 liabilitiesThere 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 riskThe 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 £511,000 (2021: £735,000) 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 riskCredit 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”, £911,000 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”, £6,760,000 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, £874,000 falls within the banding of nil to 2 years past due and £5.9 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”, £1,931,000 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”, £7,328,000 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, £5.0 million falls within the banding of nil to 2 years past due and £2.3 million is 3 to 5 years past due. Notwithstanding this information, the Directors did not consider the loan notes to be impaired at 31 March 2021 or that maturity dates of the principal had altered.

Liquidity riskLiquidity 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: £637,000, 2021: £543,000) 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 £276,000 for the year ended 31 March 2022 (2021: £206,000).

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, £192,000 (2021: £172,000) 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.