DOWNING ONE VCT PLC Report and Accounts for the year ended 31 March 2017
FINANCIAL SUMMARY 31 Mar 31 Mar
Net asset value per share ('NAV') 90.4 94.1
Cumulative dividends paid since 12 November 2013 18.0 12.0 -------- ------- Total return (net asset value plus cumulative dividends paid per 108.4 106.1 share) -------- -------
Dividends in respect of financial year
Interim dividend per share 3.0 3.0
Proposed final dividend per share 4.5 3.0 -------- ------- 7.5 6.0 -------- -------
CHAIRMAN'S STATEMENT I am pleased to present the Company's Annual Report for the year ended 31 March 2017.
The year saw a significant level of new funds raised by the Company and a fair amount of investment activity as the task of employing the new funds got underway, along with several realisations from some of the existing investments.
Net asset value and results As at 31 March 2017, the net asset value per share ('NAV') stood at 90.4p, an increase of 2.3p (2.4%) after adding back dividends of 6.0p per share which were paid during the year.
The Income Statement shows a return attributable to equity shareholders for the year of £2.3 million comprising a revenue loss of £12,000 and a capital return of £2.3 million.
Fundraising The Company launched an Offer for Subscription in December 2015, which closed on 30 September 2016. The offer raised total gross proceeds of £19.3 million, which provides the Company with a significant level of new funds and allows it to participate in attractive new investment opportunities as they arise.
Investment activity and performance At the year end, the Company held a portfolio of 90 investments. Of these, 31 are either quoted on AIM or the NEX Exchange Growth Market and have a value of £24.5 million (28% of the portfolio). The 59 unquoted investments have a value of £61.9 million and represent 72% of the portfolio.
Two new quoted investments were made at a total cost of £427,000. There were three quoted investment disposals generating proceeds of £656,000.
In the unquoted portfolio, there were 19 realisations, producing proceeds of £9.0 million and realised gains of £524,000. One follow-on investment was made at a cost of £1.6 million and 14 new investments at £25.8 million.
The quoted portfolio showed net unrealised gains of £840,000 over the year. At the year end, the Board reviewed the valuations of the unquoted investments and made a number of adjustments. Overall the unquoted portfolio showed total unrealised gains of £1.2 million for the year. Net unrealised gains for the full portfolio were therefore £2.1 million.
Further details on the investment activity are included in the Investment Adviser's Report.
Dividends The Company has a policy of seeking to pay annual dividends of at least 4% of net assets per annum.
In view of the level of realisations achieved in the period, the Board is proposing a final dividend of 4.5p per share to be paid on 18 August 2017, subject to Shareholder approval at the forthcoming AGM, to Shareholders on the register at 21 July 2017. This will bring total dividends in respect of the year ended 31 March 2017 to 7.5p per share, which represents a yield based on opening NAV of 8.0% pa.
Shareholders are reminded that the Company operates a Dividend Reinvestment Scheme for those investors that wish to reinvest their dividends and obtain further income tax relief on the reinvested dividend. A Dividend Reinvestment Form is available on Downing's website or further information can be obtained by contacting Downing.
Share buybacks The Company continues to operate a policy of buying in its own shares that become available in the market at a 5% discount to NAV (subject to liquidity and any regulatory restrictions).
During the year, the Company purchased 2.8 million shares at an average price of 87.2p per share. Overall, the total cash returned to shareholders via share buybacks and this year's total dividend of 7.5p per share is approximately equal to the level of cash proceeds received during the year.
The Company retains Panmure Gordon as its corporate broker to assist in operating the share buyback process and ensuring that the quoted spread on the Company's shares remains at a reasonable level.
Directorate As reported in the Half Yearly Report, two Directors, Helen Sinclair and Andrew Griffiths, resigned during the year. I would like to once again thank Helen and Andrew for their contributions as non-executive directors since the major merger in 2013 which created Downing ONE. My colleagues and I wish them every success in their other ventures.
Now that the original six VCTs that were merged together have been successfully integrated into one Company, the Directors believe that a Board comprising three non-executive directors is appropriate for the Company at the current time and therefore do not propose to make any new appointments for the time being.
Fundraising plans The Company did not launch a new fundraising for the 2016/17 tax year, partly because it had raised significant funds in the prior tax year which were still in the process of being invested. Progress is now being made in investing those funds and the Board has therefore decided to consider undertaking a new Offer for Subscription for the 2017/18 tax year. If the Board decides to proceed full details will be sent to Shareholders as they become available.
In order to give the Company flexibility to launch this new offer without having to incur the expense of issuing a separate Shareholder circular, resolutions will be proposed at the forthcoming AGM to give the Directors authority to allot and waive pre-exemption rights on up to approximately £35 million worth of new shares.
Annual General Meeting The Company's next Annual General Meeting ('AGM') will be held at Downing LLP, Fifth Floor, Ergon House, Horseferry Road, London, SW1P 2AL at 10.30 a.m. on 15 August 2017.
Three items of special business are proposed at the AGM: - two in respect of the allotment of shares as described above; and - one in respect of the authority to buy back shares as noted above.
Outlook The new VCT regulations continue to provide challenges for the Investment Adviser in both securing and structuring new investments and in supporting existing portfolio companies. In particular, the new rules heavily restrict opportunities to invest in AIM-quoted companies. The Company does however continue to hold a substantial portfolio of AIM-quoted investments so can continue to benefit from that for the time being.
Since the year end, the Company has made a £5 million non-qualifying investment into the Downing Micro-Cap Strategic Trust plc, a new Investment Trust managed by the same team that advises the Company on its AIM-quoted portfolio. As an Investment Trust, this is one of the few types of non-qualifying investments now permitted under the VCT regulations and will provide the Company with liquidity and the possibilities of some growth on funds that would otherwise be held as cash while awaiting investment in new VCT qualifying opportunities. For the avoidance of doubt, the Board has obtained agreement from the Advisor that there will be no 'double charging' of fees.
Over the next year, we expect to see the more recent investments develop businesses that have the potential to drive steady performance of the Company in the future. At the same time, the Adviser will be exploring realisation opportunities for the more mature investments, although, as ever, will only pursue exits if they consider the price and timing to be appropriate.
I look forward to meeting Shareholders at the AGM and to reporting developments in my statement with the Half Year Report to 30 September 2017.
Chris Kay Chairman
INVESTMENT ADVISER'S REPORT Introduction The following is a review of the performance of both the quoted and unquoted investment portfolios.
At 31 March 2017, the Company held a portfolio of investments in 90 quoted and unquoted companies, valued in total at £86.4 million.
Net asset value and results The net asset value per Share ('NAV') at 31 March 2017 stood at 90.4p, compared to the NAV at 31 March 2016 of 94.1p. Total Return (NAV plus cumulative dividends paid since the merger in 2013) is 108.4p.
The return on ordinary activities after taxation for the year was £2.3 million, comprising a revenue loss of £12,000 and a capital profit of £2.3 million.
Unquoted Venture Capital investments Investment activity At 31 March 2017, the unquoted portfolio was valued at £61.9 million, comprising 59 investments, spread across a number of sectors.
During the period, there were 14 new investments totalling £25.8 million and one follow-on investment totalling £1.6 million. The new investments were as follows:
£2.5 million was invested in Vectis Alpha Limited which is seeking to build and develop infrastructure opportunities.
£700,000 was invested in Avid Technology Group Limited, a manufacturer of electrified ancillaries for internal combustion engines.
Brownfields Trading Limited is seeking to develop small scale waste disposal projects and £2.5 million has been invested in this company.
£2.5 million was invested in Yamuna Renewables Limited, which is seeking investment opportunities in the wood refinery sector.
Jito Trading Limited, Morava Limited and Rhodes Solutions Limited are all exploring opportunities in the wood refinery sector. £2.5 million was invested into each company. After the year end Morava was wound up in order to free up cash for other investments.
£1.5 million was invested into Pantheon Trading Limited which is seeking to develop and operate roof mounted PV systems in Cyprus.
£920,000 was invested into both Ironhide Generation Limited and Indigo Generation Limited. £738,000 was invested in Rockhopper Renewables Limited and £422,000 in SF Renewables (Solar) Limited which are in the process of acquiring land in India to build and operate 15MW ground mounted solar arrays.
One non-qualifying investment of £5 million was made into DoneLoans Limited, an investment company which makes secured loans.
£600,000 was invested into Xupes Limited, a pre-owned luxury e-commerce business based in Bishops Stortford, specialising in watches, handbags, jewellery and antiques.
A further £1.6 million was invested into Pilgrim Trading Limited which will be converting two vacant properties in London into children's day nurseries.
Realisations of investments in the year generated proceeds of £9.0 million and total profits over holding value of £524,000 from 15 full exits, and 4 partial exits. A summary of the most significant realisations is shown below:
A further distribution of £195,000 was received from the refinancing of Quadrate Catering Limited in the prior year, generating an additional profit of £161,000.
Tramps Night Club Limited, the owner of a night club in the West Midlands, has started repaying the loan notes under a refinancing arrangement. A total of £427,000 was received during the year at a profit over carrying value of £221,000.
Gatewales Limited holds rights to profit shares from a development project. The project is performing in line with plans and the profit shares are now being paid out, with £151,000 received in the year.
Kidspace Adventures Holdings Limited, which owns three well established children's play areas in Croydon, Romford and Epsom, was sold and generated proceeds of £2.8 million, being £210,000 in excess of original cost.
Two non-qualifying loans were repaid in full in the year, being Hobblers Heath Limited and Kidspace Adventures Limited, which repaid a total of £1.2 million.
Deferred consideration totalling £30,000 was received from Kilmarnock Monkey Bar Limited and Liverpool Nurseries (Holdings) Limited, both of which were sold in prior years.
Loan notes totalling £474,000 were redeemed at par from Gara Rock Resort Limited, Norman Broadbent plc and Future Biogas (SF) Limited.
Unquoted Venture Capital investments Cedarville Limited was established with the intention of developing and operating garden centres in the UK. Morava Limited was incorporated to build and develop biomass boilers in the wood refinery sector. Following a lack of suitable investment opportunities for either company, both investments were repaid in full generating total cash of £3.5 million for deployment in other qualifying prospective investments.
Redmed Limited paid final distributions of £36,000, generating a loss of £28,000 compared to holding value.
Portfolio valuation There have been a number of valuation movements in the unquoted portfolio during the year with an overall value uplift of £1.2 million. The most significant value movements are shown below.
Leytonstone Pub Limited owns and operates The Red Lion pub in Leytonstone and continues to trade well. An independent valuation also demonstrated strong growth in the underlying property value, and these two factors combined to generate a further uplift in value of £750,000.
Pearce & Saunders Limited, is a small pub group with a portfolio of three pubs in the London area. These have similarly benefitted from the continued increase in property prices across the capital, resulting in an uplift in value of £475,000 (now held at cost).
Cadbury House Holdings Limited was uplifted by £200,000 during the year. The company owns and operates a health club, restaurant and conference centre near Bristol which continues to perform well.
Fenkle Street LLP, is a property development company that purchased a building in Newcastle and converted it into a hotel. The hotel is trading well and the valuation has been uplifted by £141,000 to reflect this.
Kimbolton Lodge Limited, the elderly care home in Bedford, was valued up £141,000 and is reflective of sustained levels of good occupancy.
Tramps Night Club Limited the owner of a night club in the West Midlands, has increased in value by £171,000 following a refinancing agreement made during the year and the ongoing repayment of the loan.
Unfortunately significant write downs were also required against three investments in the period.
Oak Grove Renewables Limited, an anaerobic digestion plant in Norfolk has been reduced in value by £284,000, due to continued performance issues at the facility.
Curo Compensation Limited offers a 'software as a service' solution to blue chip companies to manage their annual staff compensation process. The company is seeking further funding in 2017 to support its growth and ongoing development. The share price of this new round has been taken in to consideration when valuing the Downing ONE holding and, as such, the year-end value has been reduced by £235,000.
Mosaic Spa and Health Club Limited continues to progress an exit strategy. The valuation has been adjusted down by £260,000 at the year end to reflect the anticipated final proceeds.
Other smaller valuation adjustments totalled to a net gain of £147,000 over the year.
Quoted investments Investment activity As at 31 March 2017, the quoted portfolio was valued at £24.5 million comprising of 31 holdings. Over 13% of the quoted portfolio is accounted for in the top 10 holdings, reflective of the focused investment management approach that the Manager deploys.
Over the year to 31 March 2017, the valuation of the quoted portfolio (taking into account realised and unrealised movements) has risen by over 3%, behind the main AIM indices over the same period which experienced gains of up to 30%. The predominant reason for this underperformance is stock-specific within the underlying portfolio, and also due to the fact that the Company does not invest in mining and extraction companies or mainstream IPOs, both of which experienced a buoyant period for share price rises.
The quoted portfolio saw relatively little change in the year. Two partial and one full disposal were made, realising gains (versus cost) of £79,000. There were two new quoted holdings in the year, the largest being an investment of £377,000 into SysGroup plc.
Portfolio Movements The main positive contributors to performance were Craneware Plc, the market leader in Value Cycle solutions for the US healthcare market, which contributed £867,000 of unrealised gains. The Company experienced strong trading and exceeded market expectations.
Science in Sport plc, the leading sports nutrition company that develops, manufactures and markets sports nutrition products for professional athletes and sports enthusiasts ('SIS') continued its growth trajectory and booked another solid year of top-line growth, growing turnover by 30% in the year. This, combined with the announcement that they are suppliers of products to the Olympic US Cycling team, helped buoy the share price. SIS contributed £749,000 of unrealised gains to the portfolio.
Amino Technologies plc, the global provider of digital TV entertainment and cloud solutions to network operators, experienced an unrealised gain of £469,000 in the portfolio. This was due to positive trading announcements following a year of difficulty integrating the Entone acquisition. The share price reflected the confidence that the management team now have in the combined business.
Meanwhile, on the negative, Inland Homes plc, a housebuilder with a specialist expertise in the acquisition and regeneration of brownfield sites, has reduced in value by £679,000, reflecting caution on UK housebuilding post Brexit and the fact that 23 legal completions were deferred following financial difficulties with one of their contractors. This meant that earnings would fall into 2017. There have been a number of announcements on planning consents and new builds since then which underpin our estimate of the Net Asset Value of this company.
Tracsis plc, leading provider of software and technology led products and services for the traffic data and transportation industry was also a negative contributor to performance, experiencing £655,000 of losses in the portfolio. This was due to caution that the full year results to the end of June 2017 would be heavily second half weighted; which the stock market viewed as a potential looming profits warning. We engaged with management and believe that although there were some short term and quantifiable challenges in the first half, that the longer term prospects of the company remain intact.
Angle plc, the specialist medtech company focusing on cancer related solutions saw some profit taking in its shares. The company initiated two 200 patient clinical studies in Europe and the US for the Company's first clinical application for detection of ovarian cancer in women. Interim evaluations of the first 50 patients in both studies have been positive. The company is still loss making, however is adequately funded for the medium term.
Generally we are confident of the longer term prospects for the Quoted Portfolio.
Outlook There has been significant unquoted investment activity in the period in a number of sectors, including several smaller, higher risk and earlier stage investments. The focus is now on supporting these businesses to achieve growth over the next few years whilst also pursuing appropriate exit strategies for the more mature investments.
The portfolio as a whole is well spread across a large number of investments and remains relatively stable however, we believe upside potential remains.
REVIEW OF INVESTMENTS
Portfolio of investments The following investments, all of which are incorporated in England and Wales, were held at 31 March 2017: Total invested by Valuation % of Funds also managed movement portfolio by Downing LLP (1) Cost Valuation in year by value
£'000 £'000 £'000 £'000
Top ten venture capital investments
Vulcan Renewables 5,548 Limited 5,030 - 6.0% 5,839
DoneLoans Limited 5,000 5,000 - 5.4% -
Downing Care Homes 4,250 Holdings Limited 3,881 - 4.6% -
Tracsis plc * 1,443 3,198 (655) 3.5% 2,845
Cadbury House Holdings 3,075 Limited 3,081 200 3.3% 1,613
Baron House 2,695 Developments LLP 2,695 - 2.9% 2,055
Leytonstone Pub Limited 1,061 2,650 750 2.9% -
Pilgrim Trading Limited 2,594 2,594 - 2.8% 3,072
Brownfields Trading Limited 2,500 2,500 - 2.7% 2,500
Jito Trading Limited 2,500 2,500 - 2.7% 2,500 -------------------------------------- ------------------ 29,785 34,010 295 36.8% 20,424 -------------------------------------- ------------------ Other venture capital investments
Rhodes Solutions 2,500 2,500 - Limited 2.7% 2,500
Vectis Alpha Limited 2,500 2,500 - 2.7% 2,500
Yamuna Renewables 2,500 2,500 - Limited 2.7% 2,500
Universe Group plc * 1,586 2,349 (212) 2.6% 2,476
Craneware plc* 850 2,201 867 2.4% 2,736
Anpario plc* 1,448 1,886 340 2.1% 3,174
Inland Homes plc* 1,526 1,786 (679) 1.9% 2,357
Science in Sport plc* 1,239 1,734 749 1.9% 4,306
Mosaic Spa and Health 1,570 Club Limited 2,747 (260) 1.7% 2,337
Plastics Capital plc* 849 1,528 310 1.7% 2,447
Pantheon Trading 1,500 1,500 - Limited 1.6% -
Quadrate Catering 1,500 1,500 - Limited 1.6% 2,300
Quadrate Spa Limited 1,872 1,500 - 1.6% 2,300
Harrogate Street LLP 1,400 1,400 - 1.5% -
Pearce & Saunders 1,320 1,320 475 Limited 1.4% 1,680
Nomansland Biogas 1,300 1,300 - Limited 1.4% 4,374
Finsbury Food Group 655 1,165 (100) plc* 1.3% 2,858
Amino Technologies plc* 700 1,061 469 1.2% 4,453
Vianet Group plc* 952 936 (41) 1.0% -
Indigo Generation 920 920 - Limited 1.0% 5,880
Ironhide Generation 920 920 - Limited 1.0% 3,880
Redhall Group plc* 500 900 225 1.0% 1,620
Pittards plc* 1,350 889 113 1.0% 1,379
Pabulum Pubs Limited 807 844 8 0.9% 915
Cohort plc* 394 822 86 0.9% -
Oak Grove Renewables 1,365 781 (284) Limited 0.8% 6,774
Data Centre Response 557 764 62 Limited 0.8% -
Fenkle Street LLP 346 764 141 0.8% 1,660
Ludorum plc 3,573 750 - 0.8% 110
Rockhopper Renewables 738 738 - Limited 0.8% 3,819
Avid Technology Group 700 700 - Limited 0.8% -
Gara Rock Resort 672 672 - Limited 0.7% 4,354
Sprue Aegis plc* 545 637 (292) 0.7% 2,379
Kimbolton Lodge Limited 664 604 141 0.7% -
Wickham Solar Limited 472 600 50 0.7% 6,637
Xupes Limited 600 600 - 0.7% 200
Tramps Night Club 849 523 171 Limited 0.6% -
Curo Compensation 688 453 (235) Limited 0.5% 430
SF Renewables (Solar) 422 422 - Limited 0.5% 6,778
Angle plc* 678 418 (276) 0.5% -
Fresh Green Power 400 400 - Limited 0.4% 600
Pennant International 335 386 248 Group plc* 0.4% 1,638
Sanderson Group plc* 336 381 (25) 0.4% 2,038
Augusta Pub Company 290 349 25 Limited 0.4% 5,005
Brooks Macdonald Group 257 340 31 plc* 0.4% 1,446
Norman Broadbent plc* 906 301 - 0.3% 752
Dillistone Group plc* 411 298 (3) 0.3% -
Brady Public Limited 272 296 83 - Company* 0.3%
SysGroup plc* 377 289 (89) 0.3% 588
Hoole Hall Country Club 2,316 250 - - Holdings Limited 0.3%
City Falkirk Limited 326 236 - 0.3% 1,062
FCT No.1 Limited 228 228 - 0.2% 448
Fubar Stirling Limited 357 225 - 0.2% 1,014
Green Energy Production 200 200 - 300 UK Limited 0.2%
Hornby plc* 500 159 (9) 0.2% 1,514
Avacta Group plc* 168 114 (99) 0.1% -
London City Shopping 110 110 - 429 Centre Limited 0.1%
Pressure Technologies 249 103 (3) - plc* 0.1%
Pro-Global Insurance 61 100 - - Solutions plc* 0.1%
Gatewales Limited 71 98 2 0.1% 426
Frontier IP Group plc* 30 95 39 0.1% -
Pearce & Saunders DevCo 88 88 - 112 Limited 0.1%
Giving Limited 83 83 - 0.1% -
Leytonstone Pub No1 81 81 - - Limited 0.1%
Flowgroup plc* 385 77 (212) 0.1% -
MI Downing UK Micro-Cap 50 50 - Growth Fund B* 0.1%
Mi-Pay Group plc 136 41 (26) - (Aimshell)* 0.0%
Wheelsure Holdings 48 30 - - plc** 0.0%
Cheers Dumbarton 64 22 - 101 Limited 0.0%
Future Biogas (Reepham 427 - - - Rd) Limited 0.0%
Top Ten Holdings plc 399 - - 0.0% -
Future Biogas (SF) 320 - - - Limited 0.0%
Hoole Hall Spa and 297 - - - Leisure Club Limited 0.0%
The Thames Club Limited 175 - - 0.0% -
China Food Company plc 149 - - 0.0% -
Resource Reserve 6 - - Recovery Limited 0.0%
Commercial Street Hotel - - - - Limited 0.0%
Antelope Pub No 1 - - - - Limited 0.0%
The 3D Pub Co Limited - - - 0.0% - -------------------------------------- ------------------ 57,612 52,387 1,790 56.9% 109,586 -------------------------------------- ------------------
Total investments 87,397 86,397 2,085 93.7% 130,010 -------- ----------- ------------------ Cash at bank and in 5,523 hand 6.3% ----------- ----------- 91,920 100.0% ----------- -----------
The Company also invested into Heyford Homes VCT Limited, Imagelinx plc, Invocas Group plc, Lochrise Limited, and Antelope Pub no 1 Limited. These investments were acquired at negligible value and continued to be valued at the same level.
All venture capital investments are unquoted unless otherwise stated.
* Quoted on AIM ** Quoted on the NEX Exchange Growth Market
(1) Other funds also managed by Downing LLP as Investment Manager or Adviser as at 31 March 2017:
· Downing TWO VCT plc · Downing THREE VCT plc · Downing FOUR VCT plc · MI Downing UK Micro-Cap Growth Fund · Downing AIM Estate Planning Service and Downing AIM NISA
Investment movements for the year ended 31 March 2017
SysGroup plc 377
MI Downing UK Micro-Cap Growth Fund B 50 --------- 427 --------- Unquoted
Doneloans Limited 5,000
Yamuna Renewables Limited 2,500
Vectis Alpha Limited 2,500
Morava Limited 2,500
Jito Trading Limited 2,500
Rhodes Solutions Limited 2,500
Brownfields Trading Limited 2,500
Pantheon Trading Limited 1,500
Pilgrim Trading Limited 1,594
Ironhide Generation Limited 920
Indigo Generation Limited 920
Rockhopper Renewables Limited 738
Avid Technology Group Limited 700
Xupes Limited 600
SF Renewables (Solar) Limited 422 --------- 27,394 --------- 27,821 ---------
Disposals Profit/ Realised
Value at (loss) vs gain/
Cost 01/04/16* Proceeds cost (loss)
£'000 £'000 £'000 £'000 £'000
Science in Sport plc 446 385 515 69 130
PHSC plc 52 42 56 4 14
Avacta plc 79 101 85 6 (16) ---------------------------------------------- 577 528 656 79 128 ---------------------------------------------- Unquoted (including loan note redemptions)
Tramps Night Club Limited 343 206 427 84 221
Quadrate Catering Limited 34 34 195 161 161
Gatewales Limited 41 55 151 110 96
Future Biogas (Reepham Road) Limited 174 130 174 - 44
Kilmarnock Monkey Bar Limited - - 16 16 16
Kidspace Adventures Holdings Limited 2,577 2,773 2,787 210 14
Liverpool Nurseries (Holdings) Limited - - 14 14 14
Camandale Limited 75 7 15 (60) 8
Hobblers Heath Limited 912 912 912 - -
Kidspace Adventures Limited 261 261 261 - -
Gara Rock Resort Limited (previously Aminghurst) 197 197 197 - -
Norman Broadbent Limited 146 146 146 - -
Future Biogas (SF) Limited 131 131 131 - -
Rostima Holdings Limited 1,043 - - (1,043) -
Southampton Hotel Limited 395 - - (395) -
VCA Capital Limited - 11 - - (11)
Cedarville Trading Limited 1,000 1,000 993 (7) (7)
Morava Limited 2,500 2,500 2,496 (4) (4)
Redmed Limited 144 64 36 (108) (28)
---------------------------------------------- 9,973 8,427 8,951 (1,022) 524 ---------------------------------------------- 10,550 8,955 9,607 (943) 652 ----------------------------------------------
* Adjusted for purchases in the year where applicable
Directors' responsibilities statement The Directors are responsible for preparing the Strategic Report, the Report of the Directors, the Directors' Remuneration Report, the separate Corporate Governance Statement and the financial statements in accordance with applicable law and regulations. They are also responsible for ensuring that the annual report includes information required by the Listing Rules of the Financial Conduct Authority.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), including Financial Reporting Standard 102, the financial reporting standard applicable in the UK and Republic of Ireland (FRS 102). Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently; - make judgments and accounting estimates that are reasonable and prudent; - state whether the financial statements have been prepared in accordance with applicable UK Accounting Standards, subject to any material departures disclosed and explained in the financial statements; and - prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and to disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements and the Directors Remuneration Report comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
In addition, each of the Directors considers that the Annual Report, taken as a whole, is fair, balanced and undertakes and provides the information necessary to assess the Company's position, performance, business model and strategy.
INCOME STATEMENT for the year ended 31 March 2017
Year ended 31 March Year ended 31 March 2017 2016
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Income 1,736 209 1,945 2,790 - 2,790
Gains on investments - 2,737 2,737 - 2,242 2,242
------------------------- ------------------------ 1,736 2,946 4,682 2,790 2,242 5,032
Investment management fees (875) (875) (1,750) (756) (756) (1,512)
Other expenses (652) - (652) (928) - (928) ------------------------- ------------------------
Return on ordinary activities before tax 209 2,071 2,280 1,106 1,486 2,592
Tax on total comprehensive income and ordinary (221) 221 - (227) 227 - activities
------------------------- ------------------------ Return attributable to equity shareholders (12) 2,292 2,280 879 1,713 2,592 ------------------------- ------------------------
Basic and diluted return per - 2.3p 2.3p 1.0p 2.0p 3.0p share
The total column within the Income Statement represents the Statement of Total Comprehensive Income of the Company prepared in accordance with Financial Reporting Standards ('FRS 102'). There are no other items of comprehensive income. The supplementary revenue and capital return columns are prepared in accordance with the Statement of Recommended Practice issued in November 2014 by the Association of Investment Companies ('AIC SORP').
STATEMENT OF CHANGES IN EQUITY for the year ended 31 March 2017
Funds held in respect of Called Capital Share shares Capital up Share redemption premium not yet Special reserve Revaluation Revenue Capital reserve account allotted reserve -realised reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
For the year ended 31 March 2017
At 1 April 932 1,525 2,792 4,423 86,483 - (4,680) 633 92,108 2016
Total - - - - - 207 2,085 (12) 2,280 comprehensive income
Realisation of - - - - - (1,593) 1,593 - - revaluations from previous years*
Transfer - - - - (6,716) 6,716 - - - between reserves*
Transactions with owners
Dividends - - - - - (5,330) - (754) (6,084) paid
Utilised in - - - (4,423) - - - - (4,423) share issue
Issue of new 112 - 10,595 - - - - - 10,707 shares
Share issue - - - - (234) - - - (234) costs
Purchase of (28) 28 - - (2,484) - - - (2,484) own shares ------------------------------------------------------------------------------------
At 31 March 1,016 1,553 13,387 - 77,049 - (1,002) (133) 91,870 2017 ------------------------------------------------------------------------------------
For the year ended 31 March 2016
At 1 April 798 1,500 69,714 2,593 7,523 - (2,805) 594 79,917 2015
Total - - - - - 2,809 (1,096) 879 2,592 comprehensive income
Cancellation of Share Premium account - - (82,321) - 82,321 - - - -
Realisation of - - - - - 779 (779) - - revaluations from previous years*
Transfer - - - - (803) 803 - - - between reserves*
Transactions with owners
Dividends - - - - - (4,391) - (840) (5,231) paid
Utilised in - - - (2,593) - - - - (2,593) share issue
Unallotted - - - 4,423 - - - - 4,423 shares
Issue of new 159 - 15,399 - - - - - 15,558 shares
Share issue - - - - (296) - - - (296) costs
Purchase of (25) 25 - - (2,262) - - - (2,262) own shares ------------------------------------------------------------------------------------
At 31 March 932 1,525 2,792 4,423 86,483 - (4,680) 633 92,108 2016 ------------------------------------------------------------------------------------
* A transfer of £1,593,000 representing previously recognised unrealised losses on disposal of investments during the year ended 31 March 2017 (2016: gains £779,000) has been made from the Capital Reserve realised to the Revaluation reserve. A transfer of £5.1 million representing realised gains on disposal of investments, less capital expenses and capital dividends in the year (2016: £1.6 million) has been made from Capital Reserves - realised to Special reserve.
BALANCE SHEET as at 31 March 2017
Investments 86,397 65,445 --------- --------
Debtors 448 292
Cash at bank and in hand 5,523 26,713 --------- -------- 5,971 27,005
Creditors: amounts falling due within one year (498) (342) --------- --------
Net current assets 5,473 26,663 --------- --------
Net assets 91,870 92,108 --------- --------
Capital and reserves
Called up share capital 1,016 932
Capital redemption reserve 1,553 1,525
Share premium account 13,387 2,792
Funds held in respect of shares not yet allotted - 4,423
Special reserve 77,049 86,483
Capital reserve - realised - -
Revaluation reserve (1,002) (4,680)
Revenue reserve (133) 633 --------- --------
Total equity shareholders' funds 91,870 92,108 --------- --------
Basic and diluted net asset value per share 90.4p 94.1p
CASH FLOW STATEMENT for the year ended 31 March 2017
Cash flow from operating activities
Profit on ordinary activities before taxation 2,280 2,592
Gains on investments (2,737) (2,242)
(Increase)/decrease in debtors (156) 300
(Decrease) in creditors (14) (385)
Cash from operations
Corporation tax paid - -
------------ ----------- Net cash generated from operating activities (627) 265
Cash flow from investing activities
Purchase of investments (27,821) (21,456)
Proceeds from disposal of investments 9,607 27,448
------------ ----------- Net cash (outflow)/inflow from investing activities (18,214) 5,992
Cash flows from financing activities
Proceeds from share issue 10,707 15,352
Funds held in respect of shares not yet allotted (4,423) 1,831
Share issue costs (234) (296)
Purchase of own shares (2,315) (2,262)
Equity dividends paid (6,084) (5,026)
------------ ----------- Net cash (outflow)/inflow from financing activities (2,349) 9,599
(Decrease)/increase in cash (21,190) 15,856 ------------ -----------
Net movement in cash
Beginning of year 26,713 10,857
Net cash (outflow)/inflow (21,190) 15,856 ------------ -----------
End of year 5,523 26,713 ------------ -----------
NOTES TO THE ACCOUNTS for the year ended 31 March 2017
1. General information Downing ONE VCT plc ('the Company') is a venture capital trust established under the legislation introduced in the Finance Act 1995 and is domiciled in the United Kingdom and incorporated in England and Wales, and its registered office is Ergon House, Horseferry Road, London SW1P 2AL.
2. Accounting policies Basis of accounting The Company has prepared its financial statements in accordance with the Financial Reporting Standard 102 ('FRS 102') and in accordance with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' revised November 2014 ('SORP').
The Company implements new Financial Reporting Standards issued by the Financial Reporting Council when required.
Presentation of income statement In order to better reflect the activities of a Venture Capital Trust and in accordance with guidance issued by the Association of Investment Companies ('AIC'), supplementary information which analyses the income statement between items of a revenue and capital nature has been presented alongside the income statement. The net revenue is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in Part 6 of the Income Tax Act 2007.
Investments Venture capital investments are designated as 'fair value through profit or loss' assets due to investments being managed and performance evaluated on a fair value basis. A financial asset is designated within this category if it is both acquired and managed on a fair value basis, with a view to selling after a period of time, in accordance with the Company's documented investment policy.
Judgements in applying accounting policies and key sources of estimation uncertainty 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').
Investments quoted on recognised stock markets are measured using bid prices.
The valuation methodologies for unlisted instruments (comprising equity and loan notes), used by the IPEV to ascertain the fair value of an investment, are as follows: - Price of recent investment; - Multiples; - Net assets; - Discounted cash flows or earnings (of the underlying business); - Discounted cash flows (from the investment); and - Industry valuation benchmarks.
The methodology applied takes account of the nature, facts and circumstances of the individual investment and uses reasonable data, market inputs, assumptions and estimates in order to ascertain fair value.
Where an investee company has gone into receivership, liquidation or administration where there is little likelihood of a recovery, the loss on the investment, although not physically disposed of, is treated as being realised.
Gains and losses arising from changes in fair value are included in the income statement as a capital item.
It is not the Company's policy to exercise significant influence or joint control over investee companies. Therefore the results of these companies are not incorporated into the Income Statement except to the extent of any income accrued. This is in accordance with the SORP and FRS 102 sections 14 and 15 that do not require portfolio investments to be accounted for using the equity method of accounting.
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.
Income Dividend income from investments is recognised when the Shareholders' right to receive payment has been established, normally the ex-dividend date.
Loan stock interest is accrued on a time apportioned basis, by reference to the principal outstanding and at the effective interest rate applicable and only where there is reasonable certainty of collection.
Distributions from investments in limited liability partnerships ('LLPs') are recognised as they are paid to the Company. Where such items are considered capital in nature they are recognised as capital profits.
Expenses All expenses are accounted for on an accruals basis. In respect of the analysis between revenue and capital items presented within the income statement, all expenses have been presented as revenue items except as follows:
- Expenses which are incidental to the acquisition of an investment are deducted from the Capital Account. - Expenses which are incidental to the disposal of an investment are deducted from the disposal proceeds of the investment. - Expenses are split and presented partly as capital items where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated. Investment management fees are allocated 50% to revenue and 50% to capital, in order to reflect the Directors' expected long-term view of the nature of the investment returns of the Company.
Taxation The tax effects on different items in the Income Statement are allocated between capital and revenue on the same basis as the particular item to which they relate using the Company's effective rate of tax for the accounting period.
Due to the Company's status as a Venture Capital Trust and the continued intention to meet the conditions required to comply with Part 6 of the Income Tax Act 2007, no provision for taxation is required in respect of any realised or unrealised appreciation of the Company's investments.
Deferred taxation is not discounted and is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when the obligations or rights crystallise based on tax rates and law enacted or substantively enacted at the balance sheet date. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the accounts. Deferred tax assets are only recognised if it is expected that future taxable profits will be available to utilise such assets and are recognised on a non- discounted basis.
Cash and cash equivalents Cash and cash equivalents include cash in hand and deposits held at call with banks with an original maturity of three months or less.
Other debtors and other creditors Other debtors (including accrued income) and other creditors are included within the accounts at amortised cost.
Share issue costs Share issue costs have been deducted from the special reserve account.
Funds held in respect of shares not yet allotted Cash received in respect of applications for new shares that have not yet been allotted is shown as 'Funds held in respect of shares not yet allotted' and recorded on the Balance Sheet.
Segmental reporting The Company only has one class of business and one market.
3. Basic and diluted return per share
Return per share based on: £'000 £'000
Net revenue return for the financial year (12) 879
Net capital gain for the financial year 2,292 1,713 --------------- -------------
Total return for the financial year 2,280 2,592 --------------- -------------
Weighted average number of shares in issue 101,137,288 85,175,415 --------------- -------------
As the Company has not issued any convertible securities or share options, there is no dilutive effect on return per share. The return per share disclosed therefore represents both the basic and diluted return per share.
4. Principal Risks The Company's investment activities expose the Company to a number of risks associated with financial instruments and the sectors in which the Company invests. The principal financial risks arising from the Company's operations are:
- Investment risks; - Credit risk; and - Liquidity risk.
The Board regularly reviews these risks and the policies in place for managing them. There have been no significant changes to the nature of the risks that the Company is exposed to over the year and there have also been no significant changes to the policies for managing those risks during the year.
The risk management policies used by the Company in respect of the principal financial risks and a review of the financial instruments held at the year-end, are provided below:
Market risks As a VCT, the Company is exposed to investment risks in the form of potential losses and gains that may arise on the investments it holds in accordance with its investment policy. The management of these investment risks is a fundamental part of the investment activities undertaken by the Investment Adviser and overseen by the Board. The Investment Adviser monitors investments through regular contact with management of investee companies, regular review of management accounts and other financial information and attendance at investee company board meetings. This enables the Investment Adviser to manage the investment risk in respect of individual investments. Investment risk is also mitigated by holding a diversified portfolio spread across various business sectors and asset classes.
The key investment risks to which the Company is exposed are:
- Investment price risk; and - Interest rate risk.
The Company has undertaken sensitivity analysis on its financial instruments, split into the relevant component parts, taking into consideration the economic climate at the time of review in order to ascertain the appropriate risk allocation.
Investment price risk Investment price risk arises from uncertainty about the future prices and valuations of financial instruments held in accordance with the Company's investment objectives. It represents the potential loss that the Company might suffer through investment price movements in respect of quoted investments and also changes in the fair value of unquoted investments that it holds.
Interest risk The Company accepts exposure to interest rate risk on floating-rate financial assets through the effect of changes in prevailing interest rates. The Company receives interest on its cash deposits at a rate agreed with its bankers. Investments in loan stock and fixed interest securities attract interest predominately at fixed rates. A summary of the interest rate profile of the Company's investments is shown below.
Interest rate profile of financial assets and financial liabilities There are three levels of interest which are attributable to the financial instruments as follows:
- 'Fixed rate' assets represent investments with predetermined yield targets and comprise fixed interest and loan note investments. - 'Floating rate' assets predominantly bear interest at rates linked to the Bank of England base rate and comprise cash at bank. - 'No interest rate' assets do not attract interest and comprise equity investments, non-interest bearing convertible loan notes, loans and receivables (excluding cash at bank) and other financial liabilities.
The Company monitors the level of income received from fixed, floating and non interest rate assets and, if appropriate, may make adjustments to the allocation between the categories, in particular, should this be required to ensure compliance with the VCT regulations.
As the Bank of England base rate fell for the first time in seven years by 0.25% to 0.25% per annum it is not believed that a further reduction from this level is likely. Any potential change in the base rate, at the current level, would have an immaterial impact on the net assets and total return of the Company.
Credit risk Credit risk is the risk that the counterparty to a financial instrument is unable to discharge a commitment to the Company made under that instrument. The Company is exposed to credit risk through its holdings of loan stock in investee companies, investments in fixed interest securities, cash deposits and debtors.
The Investment Adviser manages credit risk in respect of loan notes with a similar approach as described under investment risks above. In addition the credit risk is mitigated by registering floating charges, covering the full par value of the loan stock in the form of fixed and floating charges over the assets of the investee companies. The strength of this security in each case is dependent on the nature of the investee company's business and its identifiable assets. The level of security is a key means of managing credit risk. Similarly, the management of credit risk associated with interest, dividends and other receivables is covered within the investment management procedures.
Cash is mainly held at Royal Bank of Scotland plc, with a balance also maintained at Bank of Scotland plc, both of which are A-rated financial institutions and ultimately part-owned by the UK Government. Consequently, the Directors consider that the credit risk associated with cash deposits is low.
There have been no changes in fair value during the year that can be directly attributable to changes in credit risk.
As at 31 March 2017, of the loan stock classified as 'past due' below, £9,848,000 relates to the principal of loan notes where, although the principal remains within the term, the investee company is not fully servicing the interest obligations under the loan note and is in arrears. Notwithstanding the arrears of interest, the Directors do not consider that the loan note itself has been impaired or the maturity of the principal has altered.
As at 31 March 2017, of the loan stock classified as 'past due' below, £2,101,000 relates to the principal of loan notes where the principal has passed its maturity date. As at the balance sheet date, the extent to which the principal is past its maturity date, £1.4 million falls within the banding of nil to 2 years past due and £0.7 million is 3 to 5 years past due. Notwithstanding this information, the Directors do not consider the loan notes to be impaired at the current time or that maturity dates of the principal have altered.
As at 31 March 2016, of the loan stock classified as 'past due' below, £7,585,000 relates to the principal of loan notes where, although the principal remains within term, the investee company is not fully servicing the interest obligations under the loan note and is in arrears. Notwithstanding the arrears of interest, the Directors do not consider that the loan note itself has been impaired or the maturity of the principal has altered.
As at 31 March 2016, of the loan stock classified as 'past due' below, £2,605,000 relates to the principal of loan notes where the principal has passed its maturity date. As at the balance sheet date, the extent to which the principal is past its maturity date, £2.1 million falls within the banding of nil to 2 years past due and £0.5 million is 3 to 4 years past due. Notwithstanding this information, the Directors do not consider the loan notes to be impaired at the current time or that the maturity dates of the principals have altered.
Liquidity risk Liquidity risk is the risk that the Company encounters difficulties in meeting obligations associated with its financial liabilities. Liquidity risk may also arise from either the inability to sell financial instruments when required at their fair values or from the inability to generate cash inflows as required. The Company normally has a relatively low level of creditors (2017: £498,000, 2016: £342,000) and has no borrowings. Also most quoted investments held by the Company are considered to be readily realisable. The Company always holds sufficient levels of funds as cash and readily realisable investments in order to meet expenses and other cash outflows as they arise. For these reasons the Board believes that the Company's exposure to liquidity risk is minimal.
The Company's liquidity risk is managed by the Investment Adviser in line with guidance agreed with the Board and is reviewed by the Board at regular intervals.
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 2017, but has been extracted from the statutory financial statements for the year ended 31 March 2017 which were approved by the Board of Directors on 17 July 2017 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 2016 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 2017 will be printed and posted to shareholders shortly. Copies will also be available to the public at the registered office of the Company at Ergon House, Horseferry Road, London SW1P 2AL and will be available for download from and www.downing.co.uk
This announcement is distributed by Nasdaq Corporate Solutions on behalf of Nasdaq Corporate Solutions clients. The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: Downing ONE VCT plc via GlobeNewswire
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