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6 Jul 2021 17:30
Final ResultsDOWNING FOUR VCT PLCLEI: 21380035MV1VRYEXPR95Final Results for the year ended 31 March 20216 July 2021
Financial Highlights
| Unaudited | Audited | Audited | |||
| 30 June 2021 | 31 March 2021 | 31 March 2020 | |||
| Pence | pence | pence | |||
| Generalist Share pool | |||||
| Net Asset Value per Generalist Share | 67.5 | 67.2 | 61.7 | ||
| Cumulative distributions | 2.5 | 2.5 | - | ||
| Total Return per Generalist Share | 70.0 | 69.7 | 61.7 | ||
| Healthcare Share pool | |||||
| Net Asset Value per Healthcare Share | 73.8 | 68.6 | 68.1 | ||
| Cumulative distributions | 2.5 | 2.5 | - | ||
| Net Asset Value and Total Return per Healthcare Share | 76.3 | 71.1 | 68.1 | ||
| DSO D Share pool | |||||
| Net Asset Value per DSO D Share | 10.2 | 12.0 | |||
| Cumulative distributions | 94.5 | 94.5 | |||
| Adjusted for Performance Incentive estimate | (0.5) | (4.3) | |||
| Total Return per DSO D Share | 104.2 | 1 | 102.2 | ||
| DP67 Share pool | |||||
| Net Asset Value per DP67 Share | 18.4 | 18.8 | |||
| Cumulative distributions (since original launch) | 67.8 | 67.8 | |||
| Total Return per DP67 Share | 86.2 | 86.6 | |||
1Based on Total Return to Shareholders at 31 March 2021, a Performance Incentive is expected to become due to management. The Performance Incentive has been estimated at 0.5p per DSO D Share. No provision has been included in the accounts as the conditions of the Performance Incentive fee have not yet been met.
Chairman’s StatementIntroductionI present the Company’s Annual Report for the year ended 31 March 2021.
This year has resembled no other in the Company’s history. It began in the midst of the first set of Covid lockdown restrictions. Since then, coronavirus has affected most of our investee companies and has understandably occupied much of the narrative in the Company’s reporting to Shareholders.
The Manager has had to focus on supporting the existing businesses in the Evergreen portfolios over this difficult year, with follow-on investments having been made where appropriate. The Generalist and Healthcare Share Pools were also able to resume new investment activity over the summer of 2020, and a number of new businesses were added to the portfolios.
The Board and Investment Manager are now optimistic that the Company’s Evergreen and Planned Exit portfolios have largely withstood the worst of the challenges accompanying the pandemic. However, Shareholders should expect that it will take some time for the Planned Exit portfolios to realise their remaining investments, particularly those operating in the hospitality sector, as the underlying venues need to be fully operational and re-establishing trading records in order to seek optimal value for Shareholders on exit.
I am pleased to report that most of the businesses in the Evergreen portfolios have adapted well to the challenges they have faced over the past year and have been able to continue to develop in line with their plans. There has also been a first significant success in both the Generalist and Healthcare Share Pools, which I will come on to discuss.
Evergreen Share Pool reviewGeneralist Share poolThe task of building the Generalist portfolio continued during the year, with £7.0m invested in sixteen VCT Qualifying companies, six of which were new additions to the portfolio.
The Generalist Share Total Return stood at 69.7p at the year end, representing an increase of 8.0p per Share or 13.0% over the year. This is inclusive of the first Generalist dividend, of 2.5p per Share, which was paid on 25 September 2020.
The NAV increase is largely attributable to a combination of upward price movements within the portfolio of Liquidity Investments, from which there has also been some redemption activity, and a number valuation increases in the Venture Capital portfolio, on the back of positive developments.
Positive developments include E-Fundamentals (Group) Limited, Virtual Class Limited, Imagen Limited and Trinny London Limited, which were uplifted by a combined £3.7m at the year end.
There have, however, also been some valuation reductions, most notably Lignia Wood Company Limited which has badly affected by the pandemic and is unlikely to recover. A full impairment provision has been recognised as a result. Empiribox Holdings Limited and Upp Technologies Group Limited were also reduced in value by a total of £846,000 as at 31 March 2021.
There were also two full exits and two loan note conversions during the period, which are set out in the Investment Manager’s Report. These transactions resulted in a total realised loss of £382,000.
As Shareholders will be aware, the Generalist Share pool invested a proportion of its funds awaiting deployment into qualifying investments in an investment trust and OEICs managed by Downing, which mainly focus on quoted small cap companies (together termed the ‘Liquidity investments’). Since the market correction in March 2020, brought about by the coronavirus pandemic, this portfolio has recovered well, generating realised and unrealised valuation gains totalling £2.5 million for the year ended 31 March 2021. As noted in more detail in the Manager’s report, following redemptions from the Liquidity portfolio, the only significant holding remaining at the year end was that of Downing Strategic Micro-Cap Investment Trust plc, which has published some positive updates since 31 March 2021.
A more detailed review of the Generalist Share pool is included in the Investment Manager’s Report.
Healthcare Share poolThe development of the Healthcare portfolio continued during the year, with £3.5 million having been invested in eight VCT Qualifying companies, four of which were new investments.
The Healthcare Share Total Return stood at 71.0p at the year end, representing an increase of 2.9p per Share or 4.3% over the year after adjusting for the first Healthcare dividend of 2.5p per Share, which was paid on 25 September 2020.
The increase in the Healthcare NAV is the result of quoted price increases in respect of the portfolio of Liquidity investments, coupled with one positive development in the Venture Capital portfolio.
As with the Generalist Share pool, the portfolio of Liquidity investments held by the Healthcare Share pool has recovered well since the March 2020 market correction, generating realised and unrealised valuation gains totalling £629,000 for the year ended 31 March 2021. As noted in more detail in the Manager’s report, following redemptions from the Liquidity portfolio, the only significant holding remaining at the year end was that of Downing Strategic Micro-Cap Investment Trust plc.
Within the Healthcare Venture Capital portfolio, there is one small valuation reduction to report as at 31 March 2021, while the portfolio as a whole increased in value by £640,000. Destiny Pharma plc was uplifted in value by £638,000 as at 31 March 2021, based on the quoted share price at that date, which has increased by more than 400% on 31 March 2020. The company raised a further £10.4 million, via a placing of new shares in the market, to support the acquisition of the global rights to a drug combatting C. difficile. The company also successfully completed another clinical trial phase in respect of its XF-73 nasal gel, which seeks to prevent post-surgical infections.
It is disappointing to report that, after being materially behind on its plans, ADC Biotechnology was exited in full during the period, resulting in a realised loss of £430,000 against the 31 March 2020 valuation.
A more detailed review of the Healthcare Share pool is included in the Investment Manager’s Report.
Post Balance Sheet eventsThere is positive news to report for the Generalist and Healthcare Share pool since the year end. On 3 June 2021 Arecor undertook a successful IPO on AIM. The group raised a further £20 million as part of the IPO, taking the market capitalisation of the company to approximately £62.5 million. The fundraising proceeds will be used to accelerate research and development. On the basis of the quoted bid price as at 30 June 2021, the value of the Generalist and Healthcare share pools’ investments in the business increased by approximately £355,000 and £1.3 million respectively.
The impact of these valuation increases is included in the 30 June 2021 NAVs stated in this report, shown under Financial Highlights.
Planned Exit Share poolsDSO D Share poolThe DSO D Share portfolio held four remaining investments as at 31 March 2021. As Shareholders will be aware, the coronavirus pandemic has caused significant disruption to the exit processes in respect of these remaining investments. Plans to sell the two solar businesses, Fresh Green Power Limited and Green Energy Production Limited, have been delayed as onsite inspections by the prospective buyer had not been possible due to coronavirus restriction, but are now expected to take place in the coming months.
The realisation of the investments in Pearce and Saunders Limited and Pearce and Saunders DevCo Limited now rests on the sale of the remaining pub site in Eltham, which had been closed for much of the last year. Sale plans will resume once the remaining site has had the opportunity to achieve a period of good trading activity once restrictions are fully lifted.
The DSO D Share NAV stood at 10.2p at the year end, a decrease of 1.8p per Share over the year. However, owing to the delays in exiting from the remaining investments, the estimated performance incentive has also reduced from 31 March 2020, by 3.8p per Share. As the reduction in the performance incentive has exceeded the reduction in the reported NAV, the Total Return to DSO Shareholders has increased from the level stated as at 31 March 2020, by 2.0p per Share, or 16.7%. Total Return (net of the estimated performance incentive) therefore now stands at 104.2p per share compared to the cost for Shareholders who invested in the original DSO D Share offer of 100.0p, or 70.0p per share net of income tax relief.
A more detailed review of the DSO D Share pool is included in the Investment Manager’s Report.
DP67 Share poolThe remaining value in the DP67 Share portfolio is spread across three investments which have significant exposure to the hospitality sector. The underlying venues have been closed for a large proportion of the last year and will need to be fully operational and trading well before sales plans can be resumed. The Manager tentatively anticipates that these plans might resume within the next twelve months.
As at 31 March 2021, DP67 Share NAV stood at 18.4p and Total Return stood at 86.2p per share, a fall of 0.4p per share or 2.1% since 31 March 2020. A more detailed review of the DP67 Share pool is included in the Investment Manager’s Report.
Share buybacksThe Company operates a general policy of buying in its own shares that become available in the market, subject to regulatory and liquidity factors. Any such purchases are undertaken at a price approximately equal to NAV (i.e. at a nil discount).
As the focus for the two remaining Planned Exit Share pools is on returning funds to Shareholders via distributions, the Company will not undertake any further buybacks in respect of those share classes.
During the year ended 31 March 2021, the Company appointed 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. If you wish to sell or buy shares in the Company, the contact details of Panmure Gordon can be found on the Shareholder Information page of the Annual Report.
No Shares were repurchased during the year ended 31 March 2021.
DividendsDowning FOUR has a target of seeking to pay annual dividends of at least 4% of the respective Generalist and Healthcare net asset values per annum. As the Generalist and Healthcare portfolios are still in a building phase and each has a considerable pipeline of investment opportunities, the Board considers it appropriate to propose final dividends for the year ended 31 March 2021 which are in line with the base target of 4%.
The Board is proposing to pay final dividends of 2.75p per Generalist Share and 2.75p per Healthcare Share on 24 September 2021, to Shareholders on the register as at 3 September 2021. The proposed dividends are subject to Shareholder approval at the forthcoming AGM. Following the payment of the proposed dividends, the Company will have paid cumulative dividends of 5.25p per Generalist Share and 5.25p per Healthcare Share.
Further dividends in respect of the Company’s Planned Exit Share pools will be paid once the remaining realisations have taken place.
Responsible investmentThe Board notes the Investment Manager, 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, in order to enhance returns for investors.
Further detail on the Investment Manager’s approach to responsible investment, including the key principles and screening approach, can be found on pages 42 and 43 of the Annual Report.
Annual General Meeting (“AGM”)With coronavirus restrictions easing over recent months, I am pleased to announce that it is the Company’s intention to invite Shareholders to attend this year’s AGM in person. Should restrictions imposed by the UK Government mean that this is no longer possible, the Company will communicate a revised plan to Shareholders.
The AGM is planned to take place at 6th Floor, St. Magnus House, 3 Lower Thames Street, London, EC3R 6HD at 11:00 a.m. on 8 September 2021.
One item of special business is to be proposed at the AGM, in respect of the authority to buy back shares as noted above.
Shareholders are able to submit their proxy forms via email to d4agm@downing.co.uk by 11:00 a.m. on 6 September 2021.
Board CompositionThe Nomination Committee is currently carrying out a review of the composition of the Board and Shareholders will be provided with an update in due course.
OutlookNow that the most severe of the coronavirus restrictions appear to be behind us, I am optimistic that many of the businesses in the Generalist and Healthcare portfolios can progress towards delivering their potential. In line with expectations for portfolios such as these, a number of, what we now know to be, the weaker investments have shown that they are unlikely to be able to deliver their business plans. As these fall away we should be left with a portfolio of stronger businesses that can drive growth for Shareholders.
As at 30 June 2021, the Generalist and Healthcare Share pool NAVs had increased to 67.5p and 73.8p respectively.
The delays in exiting from the remaining investments in the Planned Exit share pools have been frustrating and it is still not clear when the Manager will be able to complete the process. Once the economy has fully reopened, the options for realising the hospitality investments are expected to become clearer.
Offers for subscriptionDuring the 2021 tax year, the Company had open offers in respect of its Generalist and Healthcare Share classes, principally to allow the Company to continue to issue new Shares to ongoing monthly investors. During the year ended 31 March 2021, the Company raised £1.5 million under the Generalist Offers and £552,000 under the Healthcare Offers. On 5 April 2021, the Company raised a further £495,000 from the issue of new Generalist and Healthcare Shares.
Shareholders should be encouraged that I, along with members of the Downing management team, subscribed for Generalist Shares under the recent offers.
New fundraising plansIt is intended that the current non-prospectus Offers will be replaced by a full prospectus offer in respect of both the Generalist and Healthcare Share classes. The Directors believe that there continues to be good opportunities to invest in young growth companies and the Manager reports a good level of potential deal flow.
As part of the new prospectus offer, the Company also plans to launch a new AIM Share class, which would seek to invest in a focused portfolio of VCT Qualifying companies quoted on AIM. The Manager has a well-established team with significant experience in investing in smaller quoted companies, and has reported that there is a strong pipeline of potential deals which would be VCT Qualifying.
It is intended that the Generalist, Healthcare and AIM Share classes would each seek to raise an equal amount under the combined prospectus offer.
As the fundraising plans described above are subject to Shareholder approval at a General Meeting of the Company, the Company will shortly publish a circular setting out these plans in more detail.
Sir Aubrey Brocklebank Bt.Chairman
Generalist Share Pool
Share Pool Summary
| 31 March 2021 | 31 March 2020 | ||
| Financial highlights | Pence | pence | |
| Net Asset Value per Generalist Share | 67.2 | 61.7 | |
| Cumulative distributions | 2.5 | - | |
| Total Return per Generalist Share | 69.7 | 61.7 |
Investment Manager’s Report - Generalist Share Pool
i. OverviewIntroductionWe present a review of the investment portfolio and activity for the Generalist Share pool for the year ended 31 March 2021.
This Investment Manager’s Report is split into three sections comprising this overview, a review of Venture Capital Portfolio and a report on the portfolio of Liquidity Investments.
Net Asset Value and resultsAs at 31 March 2021, the NAV of a Generalist Share stood at 67.2p, an increase of 8.0p (13.0%) for the year after adding back the first Generalist dividend, of 2.5p per Share, which was paid on 25 September 2020.
The return on ordinary activities for the Generalist Share pool for the year was £3.8 million (2020: loss of £9.8 million), comprising a revenue loss of £91,000 (2020: £582,000) and a capital gain of £3.8 million (2020: loss of £9.2 million).
Whilst there has been some recovery in the NAV since 31 March 2020, the Total Return to Shareholders as at 31 March 2021, of 69.7p, continues to be considered an underperformance against our expectations for the Generalist Share pool.
A proposed final dividend of 2.75p per share will be paid on 24 September 2021, to Shareholders on the register at 3 September 2021. This is in line with the stated dividend target for the Generalist Share pool, to pay dividends of at least 4% of net assets per annum.
Portfolio OverviewAs at 31 March 2021, the Generalist Share Pool held a portfolio of 36 Venture Capital investments and two Liquidity investments, with a combined value of £31.8 million.
The year ended 31 March 2021 was one of significant challenge to businesses in the UK and the rest of the World. During this period, we have been working closely with portfolio companies to provide guidance and, where appropriate, additional funding to support these businesses in navigating the challenges brought about by the coronavirus pandemic.
As Shareholders might expect, as the Generalist Share pool has made investments in a range of different businesses, the pandemic has impacted certain companies within the portfolio more so than others.
However, we are pleased to report that the portfolio has generally weathered the pandemic well and many of the businesses within it are well positioned to continue to progress with their plans. The valuation movements during the period are discussed in more detail in the following sections of this Investment Manager’s Report.
Portfolio PerformanceOverall, several larger valuation reductions in the Venture Capital Portfolio were more than offset by a number of valuation uplifts during the period, resulting in a net valuation uplift on this portfolio, of £2.0 million.
The carrying values of the Liquidity Investments have been adjusted to reflect their quoted prices as at 31 March 2021. This resulted in a valuation uplift of £1.35 million for the period.
ii. Venture Capital PortfolioInvestment activityDuring the period, a total of £7.3 million was invested in sixteen businesses, six of which are new VCT Qualifying investments.
New Venture Capital investmentsA description of each of the new VCT Qualifying investments made during the year is shown below.
Cornelis Networks, Inc. (£1.4 million), is a spin out from Intel Corporation which provides purpose-built interconnects focused on high-performance computing, data analytics and artificial intelligence. The Company’s technology allows the processing of huge volume of calculations at high speed.
Parsable, Inc. (£766,000) is a leading provider of software to manufacturing industries. Its Connected Worker platform helps improve safety, quality and productivity by connecting and empowering frontline workers to optimise processes and execute work more quickly, reducing waste and improving safety.
Ayar Labs, Inc. (£764,000) has developed components for high performance computing and data centre applications to deliver better bandwidth, better power, and reduced latency.
Carbice Corporation (£656,000) is a nanotechnology company developing technologies to dissipate heat from electronic devices such as phones and satellites that improve performance and safety.
Trinny London Limited (£219,000) is an e-commerce-based beauty and cosmetics brand launched by Trinny Woodall.
MIP Diagnostics Limited (£200,000) is a manufacturer of polymer based synthetic antibodies that provide a viable alternative to antibodies for diagnostic immunoassays which are used across a variety of sectors including diagnostics, sensors, food testing and reagent purification.
Follow-on Venture Capital investmentsA description of each of the follow-on investments made into existing businesses in the Venture Capital Portfolio is shown below.
During the period, the existing loan note investments (including interest thereon) in Empiribox Holdings Limited, a provider of equipment and training to primary schools across the UK, converted into equity as part of a restructuring. The Generalist Share pool also made a further equity investment of £250,000 during the period.
A further £525,000 was invested in FundingXchange Limited. The business is an SME funding platform and B2B technology provider which enables online lending.
During the period, the existing £300,000 loan note investment in Channel Mum Limited, the developer and operator of a community-based online platform for parents, converted into equity as part of a new funding round. At this point, the Generalist Share pool also made a further equity investment of £175,000.
£434,000 was invested in Congenica Limited, a company which has developed a genomics-based diagnostic decision support platform which helps doctors identify rare diseases in patients.
A further £250,000 was invested in Virtual Class Limited, trading as Third Space Learning. The company has developed an online educational platform that provides mathematics tuition to pupils studying for their Key Stage 2 exams.
£250,000 was invested in Hummingbird Technologies Limited, the owner of an advanced crop analytics platform that is powered by machine learning and aerial imagery to assess and predict crop health.
£158,000 was invested in in Streethub Limited (trading as Trouva), an online marketplace for a curated range of homeware and lifestyle products.
A further £114,000 was invested in Arecor Limited the developer of biopharmaceuticals and proprietary diabetes-related products, including ultra-fast acting insulin to treat type 1 and 2 diabetes. In June 2021, Arecor admitted its shares to trading on AIM and raised a further £20 million via a new placing. The proceeds will be used to facilitate the development of its internal proprietary diabetes and specialty hospital products.
£62,000 was invested in ADC Biotechnology Limited, in order to support the business towards an exit. Following this investment, the Generalist Share Pool’s holding in the company was exited in full, generating initial proceeds of £110,000, with a further £115,000 to follow should the business achieve certain milestones. As this second amount is contingent on events which are outside of the control of the Company or Downing LLP, it has not been included in the Generalist NAV or as part of the exit proceeds.
A further £50,000 was invested in Exonar Limited, a developer of software solutions which help ensure compliance with data-centric regulations and imperatives, including GDPR.
Finally, BridgeU Corporation, an educational technology business, was exited in full during the period, generating initial proceeds of £462,000, resulting in a gain over holding value of £48,000. It is likely that the Generalist Share Pool will receive further proceeds of up to £143,000, however additional amounts have, as yet, not been recognised as their recovery is subject to events outside the Company’s control.
Portfolio valuationDuring the period, the Venture Capital portfolio of the Generalist Share pool was increased in value by a total of £1.4 million. Whilst there have been a number of positive developments within the Venture Capital portfolio, several companies were reduced in value due to them not progressing as we had hoped.
Lignia Wood Company Limited has experienced material reductions in demand since March 2020 as the restrictions on the movement of goods have impacted the supply chain significantly. Given the impact of coronavirus on the business’ performance to date, the business has not been able to raise further funds. As a result, we believe that the business will now ultimately fail, and the value of the Generalist Share pool’s investment has therefore been reduced to £nil, from £1,25 million as at 31 March 2020.
As noted previously, Empiribox Holdings Limited was restructured during the period. The valuation of the Generalist Share pool’s investment in the business was reduced by £280,000 as at 31 March 2021, as the business continues to be behind on its plans following delays caused by the pandemic.
E-Fundamentals (Group) Limited has progressed well both in the UK and in the US, with recurring revenues continuing to grow. This good performance has resulted in a valuation uplift of £1.1 million as at 31 March 2021.
Virtual Class Limited, trading as Third Space Learning, which received further funding from the Generalist Share pool during the period, was uplifted in value by £1.1 million as at 31 March 2021. The business has seen an increase in demand for its online educational platform.
Imagen Limited, the developer of a cloud-based enterprise video platform, continues to have a strong revenue pipeline and has performed ahead of budget. As a result, the Generalist Share Pool’s investment in the business was uplifted by £828,000 as at 31 March 2021.
Trinny London Limited, the e-commerce-based beauty and cosmetics brand in which the Generalist Share Pool made its first investment in the summer of 2020, has been uplifted by £738,000 at the period end as a result of the company performing significantly ahead of budget.
Destiny Pharma plc, which is listed on London’s Alternative Investment Market (AIM), was uplifted by £425,000 as at 31 March 2021, in line with the prevailing quoted price at that date. The company has published several positive updates during the year. In particular, the company raised a further £10.4 million to facilitate the acquisition of the global rights to NTCD-M3, a drug preventing Clostridium difficile recurrence.
Upp Technologies Group Limited (previously Volo Commerce) a provider of multichannel e-commerce technology, was reduced in value by £566,000 as at 31 March 2021, on the back of its revenue performance being behind the milestones in place at the time of investment.
It is disappointing to report that we continue to anticipate no recovery of value from Live Better With Limited, a developer of a healthcare website aiming to help people with long term medical conditions.
The remaining investments in the Venture Capital Portfolio were reduced in value by a total of £56,000 as at 31 March 2021.
OutlookThere have been a number of positive developments in the portfolio over the latter months of the year ended 31 March 2021, as the vaccination rollout has progressed in the UK and restrictions have eased on the back of this. We are encouraged by many of the portfolio companies, with most having been able to adapt their operations and continue with their plans during what has been a difficult and uncertain year. We continue to actively engage with these companies, providing guidance and support to ensure they are well positioned to proceed with their milestones.
iii. Liquidity InvestmentsThe carrying values of the Liquidity Investments have been adjusted to reflect their quoted prices as at 31 March 2021. This resulted in a total uplift of £1.35 million for the year.
Downing Strategic Micro-Cap Investment Trust plcThe value of the Generalist Share pool’s holding in Downing Strategic Micro-Cap Investment Trust plc (“DSM”) increased in value by £1.3 million during the period. As at 31 March 2021, DSM’s mid-market share price traded at a discount to NAV of 12.81%, representing unrealised value in the company’s share price. The Managers of DSM also believe that the trust’s portfolio also has a level of intrinsic value which is yet to be recognised by the market. The Managers estimated this to be 43% as at 10 May 2021, and believe that a return of positive sentiment to UK small company value could further enhance this.
The Managers believe the investee companies are all well financed and should benefit from the end of lockdown and a return to more normalised trading conditions. The Managers are focused, alongside strong management teams, on the catalysts in the portfolio which has now matured into a collection of well-run and relevant businesses.
Downing Monthly Income FundThe Generalist Share Pool’s holding in Downing Monthly Income Fund (“DMI”) was redeemed in full during the year ended 31 March 2021. The redemptions generated proceeds of £3.3 million, representing a loss against original cost of £612,000. The proceeds generated were used to fund new and follow-on investments in the Venture Capital Portfolio.
Downing UK Micro-Cap Growth Fund As we noted in the Half-Yearly Report to 30 September 2020, in October 2020 the ACD (Associated Corporate Director) and Downing LLP took the decision to suspend Downing UK Micro-Cap Growth Fund (“DMCG”) on the grounds of the fund’s ongoing viability due to its small size. Subsequently, the relevant parties agreed to proceed with winding-up the fund and return capital to investors. The majority of DMCG’s portfolio was therefore realised in early 2021, meaning that c.85% of the Generalist Share Pool’s holding was redeemed prior to 31 March 2021.
This majority redemption generated proceeds of £2.5 million for the Generalist Share pool, representing a loss over cost of £1.0 million. The remaining holding in DMCG was valued at £362,000 as at 31 March 2021. This largely represents the value of smaller unquoted holdings within the DMCG portfolio, which the Managers are seeking to realise.
OutlookAs previously highlighted, £5.8 million of value was redeemed from the Generalist Share pool’s holdings in DMI and DMCG during the year. The Managers are seeking to realise the remaining value in DMCG over the remainder of 2021, to facilitate final redemptions for investors.
Once the remaining DMCG value has been realised, the only remaining holding in the Liquidity Investment Portfolio will be in DSM. Since 31 March 2021, there have been several positive developments in the DSM portfolio, most notably a significant loan redemption through a corporate event, which returned more than £5.3 million to DSM. The Managers report that DSM has a strong pipeline of new investment opportunities, some of which have already been executed.Downing LLP
Review of Investments – Generalist Share PoolThe following investments were held at 31 March 2021:
| Cost | Valuation | Valuationmovementin period | % ofportfolio | |||
| Portfolio of investments | £’000 | £’000 | £’000 | |||
| Venture Capital investments | ||||||
| E-Fundamentals (Group) Limited | 1,342 | 2,408 | 1,066 | 7.60% | ||
| Virtual Class Limited (Third Space Learning) | 1,053 | 1,876 | 1,080 | 5.90% | ||
| Imagen Limited | 1,000 | 1,828 | 828 | 5.80% | ||
| Rated People Limited | 1,282 | 1,584 | 302 | 5.00% | ||
| Cornelis Networks, Inc. | 1,402 | 1,307 | (95) | 4.10% | ||
| Streethub Limited (t/a Trouva) | 1,208 | 1,273 | 14 | 4.00% | ||
| FundingXchange Limited | 1,050 | 1,050 | - | 3.30% | ||
| Firefly Learning Limited | 1,047 | 1,047 | - | 3.30% | ||
| Ecstase Limited (t/a ADAY) | 1,000 | 1,000 | - | 3.10% | ||
| Trinny London Limited | 219 | 957 | 738 | 3.00% | ||
| Limitless Technology Limited | 757 | 920 | 117 | 2.90% | ||
| Hackajob Limited | 784 | 784 | - | 2.50% | ||
| Hummingbird Technologies Limited | 750 | 753 | 85 | 2.40% | ||
| Congenica Limited | 734 | 746 | 12 | 2.30% | ||
| Ayar Labs, Inc. | 764 | 726 | (38) | 2.30% | ||
| Parsable, Inc. | 766 | 678 | (88) | 2.10% | ||
| Masters of Pie Limited | 667 | 667 | - | 2.10% | ||
| Carbice Corporation | 656 | 609 | (47) | 1.90% | ||
| Destiny Pharma plc^ | 500 | 529 | 425 | 1.70% | ||
| JRNI Limited | 525 | 525 | - | 1.70% | ||
| Maverick Pubs (Holdings) Limited | 1,000 | 450 | (50) | 1.40% | ||
| Arecor Limited | 414 | 414 | - | 1.30% | ||
| Empiribox Holdings Limited | 1,563 | 405 | (280) | 1.30% | ||
| Fenkle Street LLP* | 301 | 388 | (12) | 1.20% | ||
| Exonar Limited | 550 | 379 | (171) | 1.20% | ||
| Cambridge Touch Technologies Limited | 459 | 361 | - | 1.10% | ||
| Xupes Limited | 933 | 291 | 291 | 0.90% | ||
| Channel Mum Limited | 675 | 278 | (197) | 0.90% | ||
| FVRVS Limited (t/a Fundamental VR) | 250 | 250 | - | 0.80% | ||
| Upp Technologies Group Limited (prev. Volo Commerce) | 1,077 | 242 | (566) | 0.80% | ||
| Lineten Limited | 400 | 209 | (191) | 0.70% | ||
| MIP Diagnostics Limited | 200 | 200 | - | 0.60% | ||
| Lignia Wood Company Limited | 1,778 | - | (1,250) | 0.00% | ||
| Live Better With Limited | 1,211 | - | - | 0.00% | ||
| Ormsborough Limited | 900 | - | - | 0.00% | ||
| Glownet Limited | 741 | - | - | 0.00% | ||
| 30,283 | 25,134 | 1,973 | 79.20% | |||
| Liquidity investments | ||||||
| MI Downing UK Micro-Cap Growth Fund* | 492 | 362 | 83 | 1.1% | ||
| Downing Strategic Micro-Cap Investment Trust plc*^ | 4,269 | 3,137 | 1,264 | 9.8% | ||
| 4,761 | 3,499 | 1,347 | 10.9% | |||
| 35,044 | 28,633 | 3,320 | 90.1% | |||
| Cash at bank and in hand | 3,141 | 9.9% | ||||
| Total investments | 31,774 | 100.0% | ||||
All Venture Capital investments are incorporated in England and Wales.*non-qualifying investment ^listed and traded on the London Stock Exchange
Investment movements for the year ended 31 March 2021
| Cost | |
| Additions | £’000 |
| Venture Capital investments | |
| Cornelis Networks, Inc. | 1,402 |
| Empiribox Holdings Limited** | 685 |
| Parsable, Inc. | 766 |
| Ayar Labs, Inc. | 764 |
| Carbice Corporation | 656 |
| FundingXchange Limited | 525 |
| Channel Mum Limited** | 475 |
| Congenica Limited | 434 |
| Virtual Class Limited (Third Space Learning) | 250 |
| Hummingbird Technologies Limited | 250 |
| Trinny London Limited | 219 |
| MIP Diagnostics Limited | 200 |
| Trouva Limited | 158 |
| Arecor Limited | 114 |
| ADC Biotechnology Limited | 62 |
| Exonar Limited | 50 |
| 7,010 |
| Cost | Valuation at 01/04/20 | Proceeds | Lossvs. cost | Realised (loss)/gain | |
| Disposals | £’000 | £’000 | £’000 | £’000 | £’000 |
| Venture Capital investments | |||||
| Empiribox Holdings Limited** | 650 | 325 | 325 | - | - |
| ADC Biotechnology Limited | 877 | 540 | 110 | (767) | (430) |
| Channel Mum Limited** | 300 | 300 | 300 | - | - |
| BridgeU Corporation | 810 | 414 | 462 | (348) | 48 |
| Liquidity investments | |||||
| MI Downing Monthly Income Fund* | 3,950 | 2,712 | 3,338 | (612) | 626 |
| MI Downing UK Micro-Cap Growth Fund* | 3,533 | 1,991 | 2,494 | (1,039) | 503 |
| 10,120 | 6,282 | 7,029 | (3,091) | 747 | |
*non-qualifying investment**includes Loan Note conversion
Healthcare Share PoolShare Pool Summary
| 31 March 2021 | 31 March 2020 | ||
| Financial highlights | Pence | pence | |
| Net Asset Value per Healthcare Share | 68.5 | 68.1 | |
| Cumulative distributions | 2.5 | - | |
| Total Return per Healthcare Share | 71.0 | 68.1 |
Investment Manager’s Report- Healthcare Share Pool
i. OverviewIntroductionWe present a review of the investment portfolio and activity for the Healthcare Share pool over the year ended 31 March 2021.
This Investment Manager’s Report is split into three sections comprising this overview, a review of Venture Capital Portfolio and a report on the portfolio of Liquidity Investments.
Net Asset Value and resultsAs at 31 March 2021, the NAV of a Healthcare share stood at 68.5p, an increase of 2.9p (4.3%) over the year after adding back the first Healthcare dividend, of 2.5p per Share, which was paid on 25 September 2020.
The return on ordinary activities for the Healthcare Share pool for the year was £549,000 (2020: loss of £2.7 million), being a revenue loss of £113,000 (2020: £240,000) and a capital gain of £662,000 (2020: loss of £2.5 million).
Whilst there has been some recovery in the NAV since 31 March 2020, the Total Return to Shareholders as at 31 March 2021, of 71.0p, continues to be considered an underperformance against our expectations for the Healthcare Share pool.
A proposed final dividend of 2.75p per share will be paid on 24 September 2021, to Shareholders on the register at 3 September 2021. This is in line with the stated dividend target for the Healthcare Share pool, to pay dividends of at least 4% of net assets per annum.
Portfolio OverviewAs at 31 March 2021, the Healthcare Share Pool held a portfolio of 13 Venture Capital investments and two Liquidity investments, with a combined value of £9.5 million.
The year ended 31 March 2021 saw the impact of the coronavirus pandemic extend through all sectors of the UK economy. Whilst the successes of some Healthcare businesses have been accelerated due to the focus on developing coronavirus vaccines, many other Healthcare businesses, such as those developing pharmaceuticals unrelated to coronavirus, have experienced delays or disruptions.
The valuation movements during the period are discussed in more detail in the following sections of this Investment Manager’s Report.
Portfolio PerformanceThere were several valuation movements in the Venture Capital Portfolio during the year, resulting in a net valuation uplift of £640,000 as at 31 March 2021.
The carrying values of the Liquidity Investments have been adjusted to reflect their quoted prices as at 31 March 2021, resulting in a valuation uplift of £241,000 for the year.
ii. Venture Capital PortfolioInvestment activityDuring the year, a total of £3.5 million was invested in eight businesses, four of which are new VCT Qualifying investments.
New Venture Capital investmentsGenincode UK Limited, trading as GEN inCode (£900,000), develops products and technology that helps patients and healthcare practitioners to assess and predict the onset of cardiovascular disease, thrombosis, and the diagnosis of Familial Hypercholesterolemia.
Invizius Limited (£500,000) is seeking to improve patient outcomes in dialysis and other extra-corporeal treatments. Its core patented technology aims to reduce inflammatory responses which can otherwise reduce the life expectancy of dialysis patients.
Cambridge Respiratory Innovations Limited (£400,000) is a company that creates innovative respiratory technologies, including its award-winning N-Tidal device which helps medical professionals diagnose respiratory conditions and monitor lung function in patients.
MIP Diagnostics Limited (£200,000) is a manufacturer of polymer based synthetic antibodies that provide a viable alternative to antibodies for diagnostic immunoassays which are used across a variety of sectors including diagnostics, sensors, food testing and reagent purification.
Follow-on Venture Capital investments£500,000 was invested in Adaptix Limited, the developer of a flat panel X-ray source which seeks to improve the accuracy and mobility of 3D imaging. The company’s technology will make portable, low radiation dose 3D imaging more accessible and lower cost than systems currently available on the market.
A further £434,000 was invested in Congenica Limited, a business which has developed a genomics-based diagnostic decision support platform which helps doctors identify rare diseases in patients.
£419,000 was invested in Arecor Limited, the developer of biopharmaceuticals and proprietary diabetes-related products, including ultra-fast acting insulin to treat type 1 and 2 diabetes. In June 2021, Arecor admitted its shares to trading on AIM and raised a further £20 million via a new placing. The proceeds will be used to facilitate the development of its internal proprietary diabetes and specialty hospital products.
£105,000 was invested in ADC Biotechnology Limited, in order to support the business towards an exit. Following this investment, the Healthcare Share Pool’s holding in the company was exited in full, generating initial proceeds of £187,000, with a further £195,000 to follow should the business achieve certain milestones. As this second amount is contingent on events which are outside of the control of the Company or Downing LLP, it has not been included in the NAV or as part of the exit proceeds.
Portfolio valuationDuring the period, the Venture Capital portfolio of the Healthcare Share pool increased in value by a total of £640,000.
We are pleased to report that the majority of the businesses in the portfolio have been able to navigate the challenges brought about by the pandemic and were able to continue to progress with their plans over the period.
Destiny Pharma plc, which is listed on AIM, was uplifted by £638,000 as at 31 March 2021, in line with the prevailing quoted price at that date, which has increased by over 400% year on year. The share price had stalled since early 2018 on the back of little news flow from the company and was subsequently impacted by the market correction in March 2020. However, we maintained confidence in the company’s longer-term prospects and its ability to execute on its plans. During the year the company published several positive updates. Notably, the company raised a further £10.4 million to facilitate the acquisition of the global rights to NTCD-M3, a drug preventing Clostridium difficile recurrence. The company also successfully recruited patients in December 2020 for its phase 2b clinical trial in respect of its XF-73 nasal gel for the prevention of post-surgical infections and is now working on plans for a phase 3 clinical study.
The Electrospinning Company Limited is a supplier and manufacturer of clinical-grade biomaterials, which can be used to act as a synthetic scaffold for implantation within body tissue to promote repair post trauma or surgery. The valuation of the Healthcare Share pool’s investment has been calibrated to the price of the most recent funding round and reduced by £58,000 at 31 March 2021 as a result.
Adaptix Limited and Congenica Limited, in which the Healthcare Share Pool made follow-on investments of £500,000 and £434,000 respectively during the year, were increased in value by £29,000 and £31,000 as at 31 March 2021, in line with calibrations to the valuations set under their latest funding rounds.
There were no other valuation movements in the Venture Capital portfolio.
OutlookWith £3.5 million having been invested in eight businesses during the year, the building of the Venture Capital portfolio of the Healthcare Share pool has progressed well during the period. The focus for the Manager is on working with the existing portfolio companies to help these businesses achieve their plans, whilst also continuing to add appropriate VCT Qualifying investments to the Healthcare Share pool’s portfolio.
Whilst is it disappointing to report Live Better With as an early loss in the portfolio, it is typically the case with young growth companies that the failures will materialise much faster than the successes, as the performance of stronger investments tends be more incremental and therefore takes a longer time to materialise. We are, however, pleased with how the majority of the Healthcare Venture Capital portfolio has coped with the challenges they have faced over the last year and we believe there is strong potential within a number of these businesses.
iii. Liquidity Investments
The carrying values of the Liquidity Investments have been adjusted to reflect their quoted prices as at 31 March 2021, resulting in a total uplift of £241,000 for the year.
Downing Strategic Micro-Cap Investment Trust plcThe value of the Healthcare Share pool’s holding in Downing Strategic Micro-Cap Investment Trust plc (“DSM”) increased in value by £535,000 during the period. As at 31 March 2021, DSM’s mid-market share price traded at a discount to NAV of 12.81%, representing unrealised value in the company’s share price. The Managers of DSM also believe that the trust’s portfolio also has a level of intrinsic value which is yet to be recognised by the market. The Managers estimated this to be 43% as at 10 May 2021, and believe that a return of positive sentiment to UK small company value could further enhance this.
The Managers believe the investee companies are all well financed and should benefit from the end of lockdown and a return to more normalised trading conditions. The Managers are focused, alongside strong management teams, on the catalysts in the portfolio which has now matured into a collection of well-run and relevant businesses.
Downing Monthly Income FundThe Healthcare Share Pool’s holding in Downing Monthly Income Fund (“DMI”) was redeemed in full during the year ended 31 March 2021. The redemptions generated proceeds of £994,000, representing a loss against original cost of £106,000. The proceeds generated were used to fund new and follow-on investments in the Venture Capital Portfolio.
Downing UK Micro-Cap Growth FundAs we noted in the Half-Yearly Report to 30 September 2020, in October 2020 the ACD (Associated Corporate Director) and Downing LLP took the decision to suspend Downing UK Micro-Cap Growth Fund (“DMCG”) on the grounds of the fund’s ongoing viability due to its small size. Subsequently, the relevant parties agreed to proceed with winding-up the fund and return capital to investors. The majority of DMCG’s portfolio was therefore realised in early 2021, meaning that c.85% of the Healthcare Share Pool’s holding was redeemed prior to 31 March 2021.
This majority redemption generated proceeds of £694,000 for the Healthcare Share pool, representing a loss over cost of £275,000. The remaining holding in DMCG was valued at £115,000 as at 31 March 2021. This largely represents the value of smaller unquoted holdings within the DMCG portfolio, which the Managers are seeking to realise.
OutlookAs previously highlighted, £1.9 million of value was redeemed from the Healthcare Share pool’s holdings in DMI and DMCG during the year. The Managers are seeking to realise the remaining value in DMCG over the remainder of 2021, to facilitate final redemptions for investors.
Once the remaining DMCG value has been realised, the only remaining holding in the Liquidity Investment Portfolio will be in DSM. Since 31 March 2021, there have been several positive developments in the DSM portfolio, most notably a significant loan redemption through a corporate event, which returned more than £5.3 million to DSM. The Managers report that DSM has a strong pipeline of new investment opportunities, some of which have already been executed.
Downing LLP
Review of Investments – Healthcare Share PoolThe following investments were held at 31 March 2021:
| Cost | Valuation | Valuationmovementin period | % ofportfolio | ||
| Portfolio of investments | £’000 | £’000 | £’000 | ||
| Venture Capital investments | |||||
| Arecor Limited | 1,519 | 1,519 | - | 11.7% | |
| Congenica Limited | 1,184 | 1,215 | 31 | 9.3% | |
| Adaptix Limited | 1,056 | 1,085 | 29 | 8.3% | |
| Open Bionics Limited | 1,000 | 1,000 | - | 7.7% | |
| Genincode UK Limited | 900 | 900 | - | 6.9% | |
| Destiny Pharma plc^ | 750 | 793 | 638 | 6.1% | |
| MyRecovery Limited | 528 | 556 | - | 4.3% | |
| FVRVS Limited | 500 | 500 | - | 3.8% | |
| Invizius Limited | 500 | 500 | - | 3.8% | |
| Cambridge Respiratory Innovations Limited | 400 | 400 | - | 3.1% | |
| The Electrospinning Company Limited | 278 | 220 | (58) | 1.7% | |
| MIP Diagnostics Limited | 200 | 200 | - | 1.5% | |
| Live Better With Limited | 1,106 | - | - | 0.0% | |
| 9,921 | 8,888 | 640 | 68.2% | ||
| Liquidity Investments | |||||
| MI Downing UK Micro-Cap Growth Fund* | 156 | 115 | 26 | 0.9% | |
| Downing Strategic Micro-Cap Investment Trust plc*^ | 729 | 535 | 215 | 4.1% | |
| 885 | 650 | 241 | 5.0% | ||
| 10,806 | 9,538 | 881 | 73.2% | ||
| Cash at bank and in hand | 3,491 | 26.8% | |||
| Total investments | 13,029 | 100.0% | |||
*non-qualifying investment^listed and traded on the London Stock Exchange
Investment movements for the year ended 31 March 2021
| Cost | |
| Additions | £’000 |
| Venture Capital investments | |
| Genincode UK Limited | 900 |
| Adaptix Limited | 500 |
| Invizius Limited | 500 |
| Congenica Limited | 434 |
| Arecor Limited | 419 |
| Cambridge Respiratory Innovations Limited | 400 |
| MIP Diagnostics Limited | 200 |
| ADC Biotechnology Limited | 105 |
| 3,458 |
| Cost | Valuation at 01/04/20 | Proceeds | Lossvs. cost | Realised (loss)/gain | |
| Disposals | £’000 | £’000 | £’000 | £’000 | £’000 |
| Venture Capital investments | |||||
| ADC Biotechnology Limited | 1,497 | 660 | 187 | (1,310) | (473) |
| Liquidity investments | |||||
| MI Downing Monthly Income Fund* | 1,100 | 757 | 994 | (106) | 237 |
| MI Downing UK Micro-Cap Growth Fund* | 969 | 543 | 694 | (275) | 151 |
| 3,566 | 1,960 | 1,875 | (1,691) | (85) | |
*non-qualifying investment
DSO D Share Pool
Share Pool Summary
| 31 March 2021 | 31 March 2020 | ||
| Financial highlights | Pence | Pence | |
| Net Asset Value per DSO D Share | 10.2 | 12.0 | |
| Cumulative distributions | 94.5 | 94.5 | |
| Adjusted for Performance Incentive estimate | (0.5) | (4.3) | |
| Total Return per DSO D Share | 104.2 | 102.2 |
Investment Manager’s Report DSO D Share Pool
IntroductionThe process of realising the investments and returning funds to Shareholders remains the focus of the DSO D Share pool, although this has been subject to significant delays as a result of the coronavirus pandemic.
Net Asset Value and resultsThe Net Asset Value (“NAV”) per DSO D Share at 31 March 2021, net of the estimated performance incentive fee, stood at 9.7p, an increase of 2.0p or 16.7% over the period. Whilst the reported NAV (prior to the deduction of the performance fee estimate) reduced by 1.8p during the year, the estimated performance incentive fee, which is expected to become due to partners and staff of Downing LLP, also reduced.
Total Return, net of the estimated performance fee, stands at 104.2p per share compared to initial cost to Shareholders, net of income tax relief, of 70.0p per Share. We consider this to be satisfactory performance when compared to the initial NAV of 100p.
The loss on ordinary activities after taxation for the year was £143,000 (2020: return of £175,000), comprising a revenue loss of £31,000 (2020: return of £121,000) and a capital loss of £112,000 (2020: return of £54,000).
Whilst it is unfortunate to report further delays in the realisation process, the NAV of the DSO Share pool has not as yet been materially impacted by the coronavirus pandemic. We believe that there continue to be opportunities to exit from the remaining investments, however we expect this process will take some time to complete.
Venture Capital investments As at 31 March 2021, the DSO D Share Pool held four Venture Capital investments with a total value of £445,000.
Portfolio activityPearce and Saunders Limited, the owner of a freehold pub in south east London, repaid loan note principal of £25,000 during the period, along with a redemption premium of £75,000.
Pearce and Saunders DevCo Limited also repaid loan note principal of £1,000.
Apex Energy Limited, the owner of a standby electricity generation plant, was sold during the year ended 31 March 2021. The sale generated proceeds of £3,000 and a loss against cost of £397,000.
Portfolio valuationDuring the year, the carrying value of the portfolio of Venture Capital investments held by the DSO D Share pool was reduced by £102,000.
Pearce and Saunders Limited has been heavily impacted by the restrictions and forced closures brought about by the coronavirus pandemic. Accordingly, the valuation has been reduced by £166,000 as at 31 March 2021.
There were two valuation increases during the year, the larger being an uplift of £51,000 in respect of Fresh Green Power Limited, the owner of solar panels on the rooftops of domestic properties in the UK. The business has been revalued in accordance with a potential sale, which was put on hold during the height of the pandemic.
Green Energy Production UK Limited owns a portfolio of commercial solar panels on the rooftops of Chicken sheds in Lincolnshire. The company is valued on a discounted cash flow basis and has been increased in value by £13,000, reflecting the latest assumptions on generation, energy pricing and operating costs for the remaining life of the project. There were no other valuation movements in the DSO D Share pool portfolio.
Outlook The focus for the DSO D Share pool continues to be on exiting from the remaining investments, however the pandemic has significantly delayed these processes. We now anticipate that these processes will be completed by the end of 2021. During this period, we will continue to monitor the companies in the portfolio and seek to maximise the proceeds for DSO D Shareholders. Further distributions will be once the final realisations have taken place.
Downing LLP
Review of investments - DSO D Share PoolThe following investments were held at 31 March 2021:
| Cost | Valuation | Valuationmovementin year | % ofportfolio | |
| Portfolio of investments | £’000 | £’000 | £’000 | |
| Venture Capital investments | ||||
| Fresh Green Power Limited | 189 | 282 | 51 | 35.7% |
| Pearce and Saunders Limited | 275 | 77 | (166) | 9.8% |
| Green Energy Production UK Limited | 100 | 67 | 13 | 8.5% |
| Pearce and Saunders DevCo Limited* | 19 | 19 | - | 2.4% |
| 583 | 445 | (102) | 56.4% | |
| Cash at bank and in hand | 344 | 43.6% | ||
| Total investments | 789 | 100.0% |
* non-qualifying investment
All Venture Capital investments are incorporated in England and Wales.
Investment movements for the year ended 31 March 2021
| Cost | Valuationat 01/04/20 | Proceeds | Gain/(loss)vs. cost | Realisedloss | |
| Disposals | £’000 | £’000 | £’000 | £’000 | £’000 |
| Venture Capital investments | |||||
| Pearce and Saunders Limited | 25 | 100 | 100 | 75 | - |
| Apex Energy Limited | 400 | 7 | 3 | (397) | (4) |
| Pearce and Saunders DevCo Limited* | 1 | 1 | 1 | - | - |
| 426 | 108 | 104 | (322) | (4) |
* non-qualifying investment
DP67 Share Pool
Share Pool Summary
| 31 March 2021 | 31 March 2020 | ||
| Financial highlights | pence | pence | |
| Net Asset Value per DP67 Share | 18.4 | 18.8 | |
| Cumulative distributions | 67.8 | 67.8 | |
| Total Return per DP67 Share | 86.2 | 86.6 |
Investment Manager’s Report - DP67 Share PoolIntroductionThe process of realising the investments and returning funds to DP67 Shareholders remains the focus for this Share pool, although, as Shareholders will be aware, this has been subject to substantial delays as a result of the coronavirus pandemic.Net Asset Value and resultsThe Net Asset Value (“NAV”) per DP67 Share at 31 March 2021 stood at 18.2p, a decrease of 0.4p or 2.1% during the year. Total Return stands at 86.2p per DP67 Share, compared to initial cost to Shareholders, net of income tax relief, of 70.0p per Share. Compared to the initial NAV of 100p, we consider the Total Return of 86.2p to be underperformance against the original expectations for the DP67 Share pool.
The loss on ordinary activities after taxation for the year was £31,000 (2020: loss of £1.3 million), comprising a revenue loss of £76,000 (2020: £559,000) and a capital gain of £45,000 (2020: loss of £758,000).
As DP67 Shareholders will be aware, the DP67 portfolio has a high level of exposure to the leisure and hospitality sector, which has been severely impacted by the restrictions and forced closures brought about by the pandemic. It has not been possible to exit from these types of investments during a period where the underlying businesses have had irregular and intermittent trading at reduced capacity. We continue to seek the best realisation outcomes for DP67 Shareholders but anticipate that it will take some time for these to be achieved.
Venture Capital investments As at 31 March 2021, the DP67 Share pool held a portfolio of five Venture Capital investments, with a total value of £2.1 million.
Portfolio activityIt is disappointing to report that there were no realisations during the year ended 31 March 2021.
Portfolio valuationThe DP67 portfolio increased in value by a total of £59,000 during the year ended 31 March 2021. This movement is attributable to adjustments to the related discounted cash flow assessments conducted in respect of Fenkle Street LLP, and another of its corporate members, Gatewales Limited.
The valuations of the remaining Venture Capital investments are unchanged from 31 March 2020.
OutlookThe focus for the DP67 Share pool continues to be on exiting from the remaining investments. It is frustrating to report that we now expect these processes to be complete towards the end of 2022. During this period, we will continue to work with the portfolio companies to seek to maximise proceeds for the DP67 Share pool. Further dividends will be paid once the final realisations have taken place.
Downing LLP
Review of Investments – DP67 Share PoolThe following investments were held at 31 March 2021:
| Cost | Valuation | Valuationmovementin year | % ofportfolio | ||
| Portfolio of investments | £’000 | £’000 | £’000 | ||
| Venture Capital investments | |||||
| Cadbury House Holdings Limited | 1,409 | 791 | - | 37.0% | |
| Fenkle Street LLP** | 405 | 727 | (23) | 34.0% | |
| Gatewales Limited* | 343 | 609 | 82 | 28.5% | |
| Yamuna Renewables Limited | 400 | - | - | 0.0% | |
| London City Shopping Centre Limited** | 99 | - | - | 0.0% | |
| 2,656 | 2,127 | (59) | 99.5% | ||
| Cash at bank and in hand | 10 | 0.5% | |||
| Total investments | 2,137 | 100.0% | |||
* partially qualifying investment ** non-qualifying investment
All Venture Capital investments are incorporated in England and Wales.
There were no investment disposals during the period.
Audited Income Statementfor the year ended 31 March 2021
| Year ended 31 March 2021 | Year ended 31 March 2020 | |||||||
| Revenue | Capital | Total | Revenue | Capital | Total | |||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |||
| Income | 266 | 2 | 268 | 272 | 69 | 341 | ||
| Gain/(loss) on investments | - | 4,816 | 4,816 | - | (11,837) | (11,837) | ||
| 266 | 4,818 | 5,084 | 272 | (11,768) | (11,496) | |||
| Investment management fees | (411) | (411) | (822) | (561) | (562) | (1,123) | ||
| Other expenses | (97) | - | (97) | (711) | - | (711) | ||
| (Loss)/return on ordinary activities before tax | (242) | 4,407 | 4,165 | (1,000) | (12,330) | (13,330) | ||
| Tax on total comprehensive income and ordinary activities | (69) | - | (69) | (300) | - | (300) | ||
| (Loss)/return attributable to equity Shareholders, being total comprehensive income for the year | (311) | 4,407 | 4,096 | (1,300) | (12,330) | (13,630) | ||
| Basic and diluted return per share: | ||||||||
| DSO D Share | (0.4p) | (1.4p) | (1.8p) | 1.5p | 0.7p | 2.2p | ||
| DP67 Share | (0.8p) | 0.4p | (0.4p) | (5.0p) | (6.8p) | (11.8p) | ||
| Generalist Share | (0.2p) | 8.2p | 8.0p | (1.4p) | (22.6p) | (24.0p) | ||
| Healthcare Share | (0.6p) | 3.5p | 2.9p | (1.3p) | (13.7p) | (15.0p) | ||
The total column within the Income Statement represents the Statement of Total Comprehensive Income of the Company prepared in accordance with Financial Reporting Standard 102 (“FRS 102”). The supplementary revenue return and capital return columns are prepared in accordance with the Statement of Recommenced Practice issued in October 2019 by the Association of Investment Companies (“AIC SORP”).
Income Statement Analysed by Share pool – unaudited and non-statutoryfor the year ended 31 March 2021Split as:
| Year ended 31 March 2021 | Year ended 31 March 2020 | ||||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||||
| DSO D Share pool | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |||
| Income | - | - | - | 142 | - | 142 | |||
| Net (loss)/gain on investments | - | (106) | (106) | - | 69 | 69 | |||
| - | (106) | (106) | 142 | 69 | 211 | ||||
| Investment management fees | (6) | (6) | (12) | (15) | (15) | (30) | |||
| Other expenses | (25) | - | (25) | (16) | - | (16) | |||
| (Loss)/return on ordinary activities before tax | (31) | (112) | (143) | 111 | 54 | 165 | |||
| Tax on total comprehensive income and ordinary activities | - | - | - | 10 | - | 10 | |||
| (Loss)/return attributable to equity Shareholders, being total comprehensive income for the year | (31) | (112) | (143) | 121 | 54 | 175 | |||
| Year ended 31 March 2021 | Year ended 31 March 2020 | |||||||
| Revenue | Capital | Total | Revenue | Capital | Total | |||
| DP67 Share pool | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | ||
| Income | - | - | - | 20 | - | 20 | ||
| Net gain/(loss) on investments | - | 59 | 59 | - | (722) | (722) | ||
| - | 59 | 59 | 20 | (722) | (702) | |||
| Investment management fees | (14) | (14) | (28) | (36) | (36) | (72) | ||
| Other expenses | (32) | - | (32) | (229) | - | (229) | ||
| (Loss)/return on ordinary activities before tax | (46) | 45 | (1) | (245) | (758) | (1,003) | ||
| Tax on total comprehensive income and ordinary activities | (30) | - | (30) | (314) | - | (314) | ||
| (Loss)/return attributable to equity Shareholders, being total comprehensive income for the year | (76) | 45 | (31) | (559) | (758) | (1,317) | ||
| Year ended 31 March 2021 | Year ended 31 March 2020 | ||||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| Generalist Share pool | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Income | 230 | 2 | 232 | 64 | 69 | 133 | |
| Net gain/(loss) on investments | - | 4,067 | 4,067 | - | (8,952) | (8,952) | |
| 230 | 4,069 | 4,299 | 64 | (8,883) | (8,819) | ||
| Investment management fees | (257) | (257) | (514) | (334) | (334) | (668) | |
| Other expenses | (25) | - | (25) | (316) | - | (316) | |
| (Loss)/return on ordinary activities before tax | (52) | 3,812 | 3,760 | (586) | (9,217) | (9,803) | |
| Tax on total comprehensive income and ordinary activities | (39) | - | (39) | 4 | - | 4 | |
| (Loss)/return attributable to equity Shareholders, being total comprehensive income for the year | (91) | 3,812 | 3,721 | (582) | (9,217) | (9,799) | |
| Year ended 31 March 2021 | Year ended 31 March 2020 | |||||||
| Revenue | Capital | Total | Revenue | Capital | Total | |||
| Healthcare Share pool | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | ||
| Income | 36 | - | 36 | 43 | - | 43 | ||
| Net gain/(loss) on investments | - | 796 | 796 | - | (2,363) | (2,363) | ||
| 36 | 796 | 832 | 43 | (2,363) | (2,320) | |||
| Investment management fees | (134) | (134) | (268) | (163) | (163) | (326) | ||
| Other expenses | (15) | - | (15) | (120) | - | (120) | ||
| (Loss)/return on ordinary activities before tax | (113) | 662 | 549 | (240) | (2,526) | (2,766) | ||
| Tax on total comprehensive income and ordinary activities | - | - | - | - | - | - | ||
| (Loss)/return attributable to equity Shareholders, being total comprehensive income for the year | (113) | 662 | 549 | (240) | (2,526) | (2,766) | ||
Audited Balance Sheet as at 31 March 2021
| 2021 | 2020 | |||
| £’000 | £’000 | |||
| Fixed assets | ||||
| Investments | 40,743 | 34,464 | ||
| Current assets | ||||
| Debtors | 701 | 548 | ||
| Cash at bank and in hand | 6,986 | 9,614 | ||
| 7,687 | 10,162 | |||
| Creditors: amounts falling due within one year | (381) | (801) | ||
| Net current assets | 7,306 | 9,361 | ||
| Net assets | 48,049 | 43,825 | ||
| Capital and reserves | ||||
| Called up Share capital | 102 | 98 | ||
| Capital redemption reserve | 58 | 58 | ||
| Special reserve | 29,417 | 39,433 | ||
| Share premium account | 20,010 | 17,971 | ||
| Funds held in respect of Shares not yet allotted | 241 | 535 | ||
| Revaluation reserve | (1,143) | (13,302) | ||
| Capital reserve – realised | 3,132 | 2,483 | ||
| Revenue reserve | (3,768) | (3,451) | ||
| Total equity Shareholders’ funds | 48,049 | 43,825 | ||
| Basic and diluted Net Asset Value per Share: | ||||
| DSO D Share | 10.2p | 12.0p | ||
| DP67 Share | 18.4p | 18.7p | ||
| Generalist Share | 67.2p | 61.7p | ||
| Healthcare Share | 68.5p | 68.1p | ||
The financial statements were approved and authorised for issue by the Board of Directors on 6 July 2021 and were signed on its behalf by:
Sir Aubrey Brocklebank Bt.Chairman
Balance Sheet Analysed by Share pool – unaudited and non-statutory
as at 31 March 2021Split as:
| 2021 | 2020 | |||
| DSO D Share pool | £’000 | £’000 | ||
| Fixed assets | ||||
| Investments | 445 | 655 | ||
| Current assets | ||||
| Debtors | 29 | 50 | ||
| Cash at bank and in hand | 344 | 272 | ||
| 373 | 322 | |||
| Creditors: amounts falling due within one year | (17) | (33) | ||
| Net current assets | 356 | 289 | ||
| Net assets | 801 | 944 | ||
| Capital and reserves | ||||
| Called up share capital | 8 | 8 | ||
| Special reserve | 966 | 900 | ||
| Revaluation reserve | (138) | 39 | ||
| Capital reserve – realised | (37) | (37) | ||
| Revenue reserve | 2 | 34 | ||
| Total equity Shareholders’ funds | 801 | 944 |
| 2020 | 2020 | |||
| DP67 Share pool | £’000 | £’000 | ||
| Fixed assets | ||||
| Investments | 2,127 | 2,068 | ||
| Current assets | ||||
| Debtors | 1 | 49 | ||
| Cash at bank and in hand | 10 | 62 | ||
| 11 | 111 | |||
| Creditors: amounts falling due within one year | (74) | (83) | ||
| Net current assets | (63) | 28 | ||
| Net assets | 2,064 | 2,096 | ||
| Capital and reserves | ||||
| Called up share capital | 11 | 11 | ||
| Special reserve | (400) | - | ||
| Revaluation reserve | (30) | (489) | ||
| Capital reserve – realised | 2,406 | 2,419 | ||
| Revenue reserve | 77 | 155 | ||
| Total equity Shareholders’ funds | 2,064 | 2,096 |
| 2021 | 2020 | |||
| Generalist Share pool | £’000 | £’000 | ||
| Fixed assets | ||||
| Investments | 28,633 | 24,584 | ||
| Current assets | ||||
| Debtors | 464 | 442 | ||
| Cash at bank and in hand | 3,141 | 3,350 | ||
| 3,605 | 3,792 | |||
| Creditors: amounts falling due within one year | (238) | (266) | ||
| Net current assets | 3,367 | 3,526 | ||
| Net assets | 32,000 | 28,110 | ||
| Capital and reserves | ||||
| Called up share capital | 59 | 56 | ||
| Capital redemption reserve | 58 | 58 | ||
| Special reserve | 20,195 | 27,666 | ||
| Share premium account | 14,009 | 12,505 | ||
| Funds held in respect of shares not yet allotted | 222 | 410 | ||
| Revaluation reserve | (814) | (10,201) | ||
| Capital reserve – realised | 847 | 101 | ||
| Revenue reserve | (2,576) | (2,485) | ||
| Total equity Shareholders’ funds | 32,000 | 28,110 |
| 2021 | 2020 | |||
| Healthcare Share pool | £’000 | £’000 | ||
| Fixed assets | ||||
| Investments | 9,538 | 7,157 | ||
| Current assets | ||||
| Debtors | 254 | 7 | ||
| Cash at bank and in hand | 3,491 | 5,930 | ||
| 3,745 | 5,937 | |||
| Creditors: amounts falling due within one year | (99) | (419) | ||
| Net current assets | 3,646 | 5,518 | ||
| Net assets | 13,184 | 12,675 | ||
| Capital and reserves | ||||
| Called up share capital | 24 | 23 | ||
| Special reserve | 8,656 | 10,867 | ||
| Share premium account | 6,001 | 5,466 | ||
| Funds held in respect of shares not yet allotted | 19 | 125 | ||
| Revaluation reserve | (161) | (2,651) | ||
| Capital reserve – realised | (84) | - | ||
| Revenue reserve | (1,271) | (1,155) | ||
| Total equity Shareholders’ funds | 13,184 | 12,675 |
Statement of Changes in Equityfor the year ended 31 March 2021
| CalledupSharecapital | CapitalRedemptionreserve | Specialreserve | Sharepremiumaccount | Funds held in respect of Shares not yet allotted | RevaluationReserve | Capitalreserve - realised | Revenuereserve | Total | |||||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |||||
| At 31 March 2019 | 138 | - | 47,040 | 7,172 | 4,772 | (4,158) | 4,940 | (1,752) | 58,152 | ||||
| Total comprehensiveincome | - | - | - | - | - | (12,227) | (103) | (1,300) | (13,630) | ||||
| Transfer between reserves* | - | - | (7,530) | - | - | 3,083 | 4,843 | (399) | - | ||||
| Unallotted Shares | - | - | - | - | 535 | - | - | - | 535 | ||||
| Transactions with owners | |||||||||||||
| Dividend paid | - | - | - | - | - | - | (7,200) | - | (7,200) | ||||
| Cancellation of shares | (58) | 58 | - | - | - | - | - | - | - | ||||
| Purchase of own shares | - | - | (77) | - | - | - | - | - | (77) | ||||
| Issue of shares | 18 | - | - | 11,178 | (4,772) | - | - | - | 6,424 | ||||
| Share issue costs | - | - | - | (379) | - | - | - | - | (379) | ||||
| At 31 March 2020 | 98 | 58 | 39,433 | 17,971 | 535 | (13,302) | 2,483 | (3,451) | 43,825 | ||||
| Total comprehensive income | - | - | - | - | - | 4,158 | 249 | (311) | 4,096 | ||||
| Transfer between reserves* | - | - | (10,016) | - | - | 8,001 | 2,021 | (6) | - | ||||
| Unallotted Shares | - | - | - | - | (294) | - | - | - | (294) | ||||
| Transactions with owners | |||||||||||||
| Dividend paid | - | - | - | - | - | - | (1,621) | - | (1,621) | ||||
| Cancellation of Shares | - | - | - | - | - | - | - | - | - | ||||
| Purchase of own shares | - | - | - | - | - | - | - | - | - | ||||
| Issue of shares | 4 | - | - | 2,097 | - | - | - | - | 2,101 | ||||
| Share issue costs | - | - | - | (58) | - | - | - | - | (58) | ||||
| At 31 March 2021 | 102 | 58 | 29,417 | 20,010 | 241 | (1,143) | 3,132 | (3,768) | 48,049 | ||||
* A transfer of £8,001,000 (2020: £3,083,000) representing previously recognised realised gains and losses on disposal of investments during the period has been made between the Revaluation Reserve and the Capital reserve - realised. A transfer of £10,022,000 (2020: £7,929,000) representing the total of: realised losses on the disposal of investments, cumulative impairment losses, capital expenses and capital dividends in the period, has been made between the Capital Reserve - realised and the Special reserve. A transfer of £6,000 (2020: £399,000), representing the balance on the Revenue reserve relating to previously cancelled share classes, has been made from the revenue reserve to the Special reserve.
Cash Flow Statementfor the year ended 31 March 2021
| Unaudited non-statutory analysis | Audited | ||||
| DSO DSharepool | DP67Sharepool | GeneralistShare pool | Healthcare Share pool | Company | |
| £’000 | £’000 | £’000 | £’000 | £’000 | |
| Cash flows from operating activities | |||||
| (Loss)/return on ordinary activities before taxation | (143) | (1) | 3,760 | 549 | 4,165 |
| Gains/(losses) on investments | 106 | (59) | (4,067) | (796) | (4,816) |
| (Decrease)/increase in creditors | (16) | (8) | (28) | (321) | (420) |
| Decrease/(increase) in debtors | 21 | 16 | (61) | (248) | (225) |
| Net cash (outflow)/inflow from operating activities | (32) | (52) | (396) | (816) | (1,296) |
| Corporation tax paid | - | - | - | - | - |
| Net cash generated from operating activities | (32) | (52) | (396) | (816) | (1,296) |
| Cash flow from investing activities | |||||
| Purchase of investments | - | - | (7,010) | (3,458) | (10,468) |
| Proceeds from disposal of investments | 104 | - | 7,029 | 1,875 | 9,008 |
| Net cash inflow/(outflow) from investing activities | 104 | - | 19 | (1,583) | (1,460) |
| Net cash inflow/(outflow) before financing | 72 | (52) | (377) | (2,399) | (2,756) |
| Cash flows from financing activities | |||||
| Issue of share capital | - | - | 1,549 | 552 | 2,101 |
| Cost of issue of share capital | - | - | (42) | (16) | (58) |
| Funds held in respect of shares not yet allotted | - | - | (189) | (105) | (294) |
| Equity dividends paid | - | - | (1,150) | (471) | (1,621) |
| Net cash outflow from financing activities | - | - | 168 | (40) | 128 |
| Net change in cash | 72 | (52) | (209) | (2,439) | (2,628) |
| Cash and cash equivalents at start of the year | 272 | 62 | 3,350 | 5,930 | 9,614 |
| Cash and cash equivalents at end of the year | 344 | 10 | 3,141 | 3,491 | 6,986 |
| Cash and cash equivalents comprise | |||||
| Cash at bank and in hand | 344 | 10 | 3,141 | 3,491 | 6,986 |
| Total cash and cash equivalents | 344 | 10 | 3,141 | 3,491 | 6,986 |
Cash Flow Statementfor the year ended 31 March 2020
| Unaudited non-statutory analysis | Audited | ||||||||
| DSO DSharepool | DP67Sharepool | DP2011 GeneralSharepool | DP2011 StructuredSharepool | GeneralistShare pool | HealthcareShare pool | Company | |||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |||
| Cash flows from operating activities | |||||||||
| Return/(loss) on ordinary activities before taxation | 165 | (1,003) | 45 | 32 | (9,803) | (2,766) | (13,330) | ||
| Losses/(gains) on investments | (69) | 722 | (75) | (56) | 8,952 | 2,363 | 11,837 | ||
| (Decrease)/increase in creditors | 15 | 13 | (31) | (15) | 46 | 298 | 326 | ||
| (Increase)/decrease in debtors | (49) | (147) | 1 | 3 | (314) | (5) | (217) | ||
| Net cash inflow/(outflow) from operating activities | 62 | (121) | (60) | (36) | (1,119) | (110) | (1,384) | ||
| Corporation tax paid | - | 159 | - | - | - | - | 159 | ||
| Net cash generated from operating activities | 62 | 38 | (60) | (36) | (1,119) | (110) | (1,225) | ||
| Cash flow from investing activities | |||||||||
| Purchase of investments | - | - | - | - | (10,565) | (2,145) | (12,801) | ||
| Proceeds from disposal of investments | 716 | 788 | 1,970 | 735 | 1,685 | - | 5,894 | ||
| Net cash inflow/(outflow) from investing activities | 716 | 788 | 1,970 | 735 | (8,971) | (2,145) | (6,907) | ||
| Net cash inflow/(outflow) before financing | 778 | 826 | 1,910 | 699 | (10,090) | (2,255) | (8,132) | ||
| Cash flows from financing activities | |||||||||
| Repurchase of shares | - | - | - | - | (61) | (16) | (77) | ||
| Issue of share capital | - | - | - | - | 4,707 | 1,715 | 6,424 | ||
| Cost of issue of share capital | - | - | - | - | (277) | (102) | (379) | ||
| Funds held in respect of shares not yet allotted | - | - | - | - | 410 | 125 | 535 | ||
| Equity dividends paid | (1,416) | (2,015) | (2,504) | (1,265) | - | - | (7,200) | ||
| Net cash (outflow)/inflow from financing activities | (1,416) | (2,015) | (2,504) | (1,265) | 4,779 | 1,724 | (697) | ||
| Net change in cash | (638) | (1,189) | (594) | (566) | (5,311) | (531) | (8,829) | ||
| Cash and cash equivalents at start of the year | 910 | 1,251 | 594 | 566 | 8,661 | 6,461 | 18,443 | ||
| Cash and cash equivalents at end of the year | 272 | 62 | - | - | 3,350 | 5,930 | 9,614 | ||
| Cash and cash equivalents comprise | |||||||||
| Cash at bank and in hand | 272 | 62 | - | - | 3,350 | 5,930 | 9,614 | ||
| Total cash and cash equivalents | 272 | 62 | - | - | 3,350 | 5,930 | 9,614 | ||
Notes to the Accountsfor the year ended 31 March 20211. 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 and Venture Capital Trusts” revised October 2019 (“SORP”).
The financial statements are presented in pounds sterling and rounded to thousands. The Company’s functional and presentational currency is pounds sterling.
Going concernThe Directors have made an assessment of the company’s ability to continue as a going concern and are satisfied that the company has the resources to continue in business for the foreseeable future, being a period of 12 months from the date these Financial Statements were approved. Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt upon the company’s ability to continue as a going concern, having taken into account the liquidity of the company’s investment portfolio and the company’s financial position in respect of its cash flows and investment commitments. Therefore, the Financial Statements have been prepared on the going concern basis.
Presentation of Income StatementIn order to better reflect the activities of a Venture Capital Trust, and in accordance with the SORP, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. The revenue return is the measure the Directors believe appropriate in assessing the Company’s compliance with certain requirements set out in Part 6 of the Income Tax Act 2007.
Reportable segments The Company has one reportable segment as the sole activity of the Company is to operate as a VCT and all of the Company’s resources are allocated to this activity.
InvestmentsAll investments are designated as “fair value through profit or loss” assets due to investments being managed and performance evaluated on a fair value basis, in accordance with Section 9.9B(a) of FRS 102. A financial asset is designated within this category if it is both acquired and managed on a fair value basis, with a view to selling after a period of time, in accordance with the Company’s documented investment policy.
It is possible to determine the fair values within a reasonable range of estimates. The fair value of an investment upon acquisition is deemed to be cost. Thereafter investments are measured at fair value in accordance with FRS 102 sections 11 and 12, together with the International Private Equity and Venture Capital Valuation Guidelines (“IPEV”).
Liquidity investments are measured using bid prices.
For unquoted investments, fair value is established by using the IPEV guidelines. The valuation methodologies for unquoted entities used by the IPEV to ascertain the fair value of an investment are as follows:
Calibration to price of recent investment;Multiples;Net assets;Discounted cash flows or earnings (of underlying business);Discounted cash flows (from the investment); andIndustry valuation benchmarks.The methodology applied takes account of the nature, facts and circumstances of the individual investment and uses reasonable data, market inputs, assumptions and estimates in order to ascertain fair value.
Gains and losses arising from changes in fair value are included in the Income Statement for the year as a capital item and transaction costs on acquisition or disposal of the investment are expensed. Where an investee company has gone into receivership, liquidation or administration (where there is little likelihood of recovery), the loss on the investment, although not physically disposed of, is treated as being realised.
It is not the Company’s policy to exercise significant influence or joint control over investee companies. Therefore, the results of these companies are not incorporated into the Income Statement except to the extent of any income accrued. This is in accordance with FRS 102 sections 14 and 15 and the SORP, which do not require portfolio investments to be accounted for using the equity method of accounting.
Calibration to price of recent investment requires a level of judgment to be applied in assessing and reviewing any additional information available since the last investment date. The manager considers a range of factors in order to determine if there is any indication of decline in value or evidence of increase in value since the recent investment date. If no such indications are noted the price of the recent investment will be used as the fair value for the investment.
Examples of signals which could indicate a movement in value are: -
Changes in results against budget or in expectations of achievement of technical milestones (patents/testing/ regulatory approvals)Significant changes in the market of the products or in the economic environment in which it operatesSignificant changes in the performance of comparable companiesInternal 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 estimates in the financial statements is the determination of the fair value of the unquoted investments by the Directors as it impacts the valuation of the unquoted investments at the balance sheet date.
Of the Company’s assets measured at fair value, it is possible to determine their fair values within a reasonable range of estimates. The fair value of an investment upon acquisition is deemed to be cost. Thereafter, investments are measured at fair value in accordance with FRS 102 sections 11 and 12, together with the International Private Equity and Venture Capital Valuation Guidelines (“IPEV”).
Income Dividend income from investments is recognised when the Shareholders’ rights to receive payment have been established, normally the ex-dividend date.Interest income is accrued on a time apportioned basis, by reference to the principal sum outstanding and at the effective rate applicable, and only where there is reasonable certainty of collection in the foreseeable future.
Distributions from investments in limited liability partnerships (“LLPs”) are recognised as they are paid to the Company. Where such items are considered capital in nature they are recognised as capital income.
Arrangement fee rebates received from Downing LLP are treated as capital income following the date of investment.
Where previously accrued income is considered unrecoverable a corresponding bad debt expense is recognised.
ExpensesAll expenses are accounted for on an accruals basis, and are stated inclusive of any VAT charged. In respect of the analysis between revenue and capital items presented within the Income Statement, all expenses have been presented as revenue items except as follows:
Expenses which are incidental to the acquisition of an investment are deducted from the Capital Account.Expenses which are incidental to the disposal of an investment are deducted from the disposal proceeds of the investment.Expenses are split and presented partly as capital items where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated. Investment management fees are allocated 50% to revenue and 50% to capital, in order to reflect the Directors’ expected long-term view of the nature of the investment returns of the Company.Expenses and liabilities not specific to a share class are generally allocated pro rata to the Net Asset Values of each share class.
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 which arises.
Deferred taxation, which is not discounted, is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the accounts.
Other debtors and other creditors Other debtors (including accrued income) and other creditors are included within the accounts at amortised cost.
Issue costsIssue costs in relation to the shares issued for each share class have been deducted from the share premium account, special reserve or revenue reserve, as applicable, for the relevant share class.
Performance IncentiveAmounts payable in respect of Performance Incentive arrangements are recorded at such time that an obligation has been established. In respect of the DSO D Share, pool, the Performance Incentive is expected to be recorded as an expense item through the Income Statement. Performance Incentives in respect of all other Share classes are paid by way of dividends, and will therefore be recognised in accordance with the dividend accounting policy.
DividendsDividends payable are recognised as distributions in the financial statements when the company’s liability to make payment has been established, typically once declared by the Board or approved by Shareholders at the AGM.
Funds held in respect of shares not yet 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.
2. Basic and diluted return per share
| WeightedAveragenumberof Shares inissue* | Revenue (loss)/ return | Capital (loss)/gain | TotalComprehensiveincome | Basic and diluted return per share | ||
| £’000 | £’000 | £’000 | pence | |||
| Return per share is calculated on the following: | ||||||
| Year ended 31 March 2021 | ||||||
| DSO D Shares | 7,867,247 | (31) | (112) | (143) | (1.8p) | |
| DP67 Shares | 11,192,136 | (76) | 45 | (31) | (0.4p) | |
| Generalist Shares | 45,988,062 | (91) | 3,812 | 3,721 | 8.0p | |
| Healthcare Shares | 18,803,854 | (113) | 662 | 549 | 2.9p | |
| Year ended 31 March 2020 | ||||||
| DSO D Shares | 7,867,247 | 121 | 54 | 175 | 2.2p | |
| DP67 Shares | 11,192,136 | (559) | (758) | (1,317) | (11.7p) | |
| DP2011 General Ordinary Shares | 15,644,066 | - | - | - | - | |
| DP2011 General A Shares | 18,418,614 | (20) | 65 | 45 | 0.3p | |
| DP2011 Structured Ordinary Shares | 10,678,725 | - | - | - | - | |
| DP2011 Structured A Shares | 12,572,817 | (20) | 52 | 32 | 0.2p | |
| Generalist Shares | 40,797,371 | (582) | (9,217) | (9,799) | (24.0p) | |
| Healthcare Shares | 18,483,433 | (240) | (2,526) | (2,766) | (15.0p) | |
*Excluding Management Shares
As the Company has not issued any convertible securities or share options, there is no dilutive effect on the return per DSO D Share, DP67 Share, Generalist Share or Healthcare Share. The return per share disclosed therefore represents both the basic and diluted return per share for all classes of share.
3. Basic and diluted Net Asset Value per share
| Shares in issue | 2021 Net Asset Value | 2020 Net Asset Value | ||||||||
| 2021 | 2020 | Pence pershare | £’000 | Pence pershare | £’000 | |||||
| DSO D Shares | 7,867,247 | 7,867,247 | 10.2 | 801 | 12.0 | 944 | ||||
| DP67 Shares | 11,192,136 | 11,192,136 | 18.4 | 2,064 | 18.8 | 2,096 | ||||
| Generalist Shares | 47,308,832 | 44,865,567 | 67.2 | 31,778 | 61.7 | 27,700 | ||||
| Generalist Management Shares | 11,216,391 | 11,216,391 | - | - | - | - | ||||
| Healthcare Shares | 19,230,091 | 18,421,889 | 68.5 | 13,165 | 68.1 | 12,550 | ||||
| Healthcare Management Shares | 4,605,472 | 4,605,472 | - | - | - | - | ||||
| Funds held in respect of shares not yet allotted | 241 | 535 | ||||||||
| Net assets per Balance Sheet | 48,049 | 43,825 | ||||||||
The Directors allocate the assets and liabilities of the Company between the DSO D Shares, DP67 Shares, Generalist Shares and Healthcare Shares such that each share class has sufficient net assets to represent its dividend and return of capital rights.
As the Company has not issued any convertible shares or share options, there is no dilutive effect on the Net Asset Value per DSO D Share, per DP67 Share, per Generalist Share or per Healthcare Share. The Net Asset Value per share disclosed therefore represents both the basic and diluted Net Asset Value per DSO D Share, per DP67 Share, per Generalist Share and per Healthcare 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:
Market risks;Credit risk; andLiquidity risk.The Board regularly reviews these risks and the policies in place for managing them. There have been no significant changes to the nature of the risks that the Company is exposed to over the year and there have also been no significant changes to the policies for managing those risks during the year.
The risk management policies used by the Company in respect of the principal financial risks and a review of the financial instruments held at the year end are provided below:
Market 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 market risks is a fundamental part of investment activities undertaken by the Investment Manager and is overseen by the Board. The Manager monitors investments through regular contact with the management of investee companies, regular review of management accounts and other financial information and attendance at investee company board meetings. This enables the Manager to manage the investment risk in respect of individual investments. Investment risk is also mitigated by holding a diversified portfolio spread across various business sectors and asset classes.
The key market risks to which the Company is exposed are:
Investment price riskForeign exchange risk; andInterest rate risk.The Company has undertaken sensitivity analysis on its financial instruments, split into the relevant component parts, taking into consideration the economic climate at the time of review in order to ascertain the appropriate risk allocation.
Investment price 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 market price movements in respect of quoted investments, and also changes in the fair value of unquoted investments that it holds.
Foreign exchange riskThe Company has exposure to fluctuations in the prevailing market rates of exchange between the US Dollar ("USD") and the British Pound ("GBP"), as a result of holding investments in companies which use USD as their functional and reporting currency. The valuations of such investments are first performed in USD and subsequently converted to the equivalent GBP values at each reporting date. As at 31 March 2021, cumulative unrealised foreign exchange losses of £266,000 (2020: nil) had been recognised in the Income Statement, representing the movements in the USD:GBP exchange rates between the date of each relevant investment and the reporting date. The Board continues to review the exposure to fluctuations in foreign currencies but has not sought to mitigate the exposure at this time. The Company does however have relationships with foreign exchange service providers and will seek to reduce the impact of foreign exchange fluctuations on future cash flows as they arise.
Interest rate riskThe Company accepts exposure to interest rate risk on floating-rate financial assets through the effect of changes in prevailing interest rates. The Company receives interest on its cash deposits at a rate agreed with its bankers. Investments in loan notes attract interest predominately at fixed rates. A summary of the interest rate profile of the Company’s investments is shown below.
There are three categories in respect of interest, which are attributable to the financial instruments held by the Company as follows:
“Fixed rate” assets represent investments with predetermined yield targets and comprise certain loan note investments and preference shares;“Floating rate” assets predominantly bear interest at rates linked to Bank of England base rate or LIBOR and comprise cash at bank; and“No interest rate” assets do not attract interest and comprise equity investments, certain loan note investments, Liquidity investments, loans and receivables (excluding cash at bank) and other financial liabilities.The Company monitors the level of income received from fixed and floating rate assets and, if appropriate, may make adjustments to the allocation between the categories, in particular, if this should be required to ensure compliance with the VCT regulations. The Bank of England base rate has been set at 0.1% per annum since 19 March 2020. Any potential change in the base rate, at the current level, would have an immaterial impact on the net assets and Total Return of the Company.
Credit riskCredit risk is the risk that a counterparty to a financial instrument is unable to discharge a commitment to the Company made under that instrument. The Company is exposed to credit risk through its holdings of loan notes in investee companies, cash deposits and debtors. Credit risk relating to holdings of loan notes in investee companies is considered to be part of market risk.
The Manager manages credit risk in respect of loan notes with a similar approach as described under Investment risks above. The management of credit risk, associated interest, dividends and other receivables is covered within the investment management procedures.
Cash is mainly held with Royal Bank of Scotland plc, an A-rated financial institution. Consequently, the Directors consider that the credit risk associated with cash deposits is low.
There have been limited changes in fair value during the year that are directly attributable to changes in credit risk.
Liquidity 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 at their fair values when required, or from the inability to generate cash inflows as required.
The Company has a relatively low level of creditors, being £353,000 (2020: £801,000), all of which are payable within one year. The Company has no borrowings, and accordingly the Board believes that the Company’s exposure to liquidity risk is low. Also, the quoted investments held by the Company are considered to be readily realisable. The Company always holds sufficient levels of funds as cash and readily realisable investments in order to meet expenses and other cash outflows as they arise. For these reasons, the Board believes that the Company’s exposure to liquidity risk is minimal. The Company’s liquidity risk is managed by the Investment Manager in line with guidance agreed with the Board and is reviewed by the Board at regular intervals.
Although the Company’s investments are not held to meet the Company’s liquidity requirements, the table below shows an analysis of the assets, highlighting the length of time that it could take the Company to realise its assets if it were required to do so.
As at 31 March 2020, of the loans classified as “past due”, £1,538,000 (2020: £3,019,000) relates to the principal of loans where the principal had passed its maturity date. The total of £1,538,000 (2020: £3,019,000) is comprised of £nil (£3,019,000) which is within 1 year of the expected maturity date and £2,653,000 (2020: £nil) relating to principal which is between 1 and 2 years past due. Notwithstanding that the principal remained outstanding passed its maturity date, the Directors did not consider that the loan principal amounts had been impaired.
5. Controlling party and related party transactions
In the opinion of the Directors, there is no immediate or ultimate controlling party.
Fees payable during the year to the Directors and their interest in shares of the Company are disclosed within the Directors’ Remuneration Report and in the Report of the Directors. There were no amounts outstanding and due to the Directors as at 31 March 2021 (2020: nil).
Further related party transactions include Investment Management and Administration fees payable to Downing LLP. In addition, Downing LLP was also paid promoter fees in connection with the offers for subscription which were open during the year. The total paid to Downing LLP during the year ended 31 March 2021 was £32,000 (2020: £286,000).
The Company also has an agreement to pay an ongoing trail fee annually to Downing LLP, in connection with applicable proceeds raised under previous offers for subscription, out of which Downing LLP has an obligation to pay trail commission to intermediaries. The total trail fee payable to Downing in respect of the year ended 31 March 2021 was £24,000, all of which was unpaid as at 31 March 2021. During the year the Company also received £267,000 from Downing LLP in respect of excess trail fees paid, relating to the years ending 31 March 2018, 31 March 2019 and 31 March 2020. The corrected trail fee in respect of the year ended 31 March 2020 was £24,000.
6. Events after the end of the reporting period In the period between 31 March 2021 and the date of this report, the Company issued the following Shares:
375,458 Generalist Shares, at an average price of 68.04p per Share; and330,796 Healthcare Shares, at an average price of 72.56p per Share.At the date of this report, there were 58,900,681 Generalist Shares and 24,166,359 Healthcare Shares in issue, including Management Shares.
On 3 June 2021, Generalist and Healthcare portfolio company Arecor undertook a successful IPO on AIM. The group raised a further £20 million as part of the IPO, taking the market capitalisation of the company to approximately £62.5 million. The fundraising proceeds will be used to accelerate research and development. On the basis of the quoted bid price as at 30 June 2021, the value of the Generalist and Healthcare share pools’ investments in the business increased by approximately £355,000 and £1.3 million respectively.
ANNOUNCEMENT BASED ON AUDITED ACCOUNTS The financial information set out in this announcement does not constitute the Company's statutory financial statements in accordance with section 434 Companies Act 2006 for the year ended 31 March 2021, but has been extracted from the statutory financial statements for the year ended 31 March 2021 which were approved by the Board of Directors on 24 June 2021 and will be delivered to the Registrar of Companies. The Independent Auditor's Report on those financial statements was unqualified and did not contain any emphasis of matter nor statements under s 498(2) and (3) of the Companies Act 2006.
The statutory accounts for the year ended 31 March 2020 have been delivered to the Registrar of Companies and received an Independent Auditors report which was unqualified and did not contain any emphasis of matter nor statements under s 498(2) and (3) of the Companies Act 2006.
A copy of the full annual report and financial statements for the year ended 31 March 2021 will be printed and posted to shareholders shortly. Copies will also be available to the public at the registered office of the Company at 6th Floor, St. Magnus House, 3 Lower Thames Street, London EC3R 6HD and will be available for download from and www.downing.co.uk/d4.