THAMES VENTURES VCT 1 PLC
LEI: 213800R88MRC4Y3OIW86
26 July 2023
Final Results for the year ended 31 March 2023
| Audited | Audited | |||
| 31 Mar | 31 Mar | |||
| 2023 | 2022 | |||
| Pence | Pence | |||
| Net asset value per share (“NAV”) | 51.80 | 61.60 | ||
| Cumulative dividends paid since 12 November 2013 | 44.50 | 41.25 | ||
| Total Return (net asset value plus cumulative dividends paid per share) | 96.30 | 102.85 | ||
| Dividends in respect of financial year | ||||
| Interim dividend per share | 1.50 | 1.25 | ||
| Proposed final dividend per share | 1.00 | 1.75 | ||
| 2.50 | 3.00 |
Chairman’s Statement
I present the Annual Report covering what has been an eventful and unfortunately financially largely unsuccessful year for your Company. We have seen a challenging investment environment for small growth businesses, with increasing inflation, increasing interest rates and the threat of recession.
Investment Advisory Arrangements
As previously reported, Foresight Group LLP (“Foresight”) was appointed as Investment Adviser to the Company following agreement by the Company’s former Investment Adviser, Downing LLP (“Downing”) to sell its non-healthcare ventures division to Foresight in a transaction that completed on 4 July 2022.
The structure of the transaction has ensured a good level of continuity with the core investment team members moving to Foresight and, the former adviser, Downing LLP, continuing to provide investment advisory services for the non-venture’s portfolio (quoted growth and yield focused investments), as well as administration services, for a handover period.
On 2 September 2022, the Company changed its name from Downing ONE VCT plc to Thames Ventures VCT 1 plc to recognise the change of Investment Adviser.
Net asset value and results
As at 31 March 2023, the net asset value per share (“NAV”) stood at 51.8p, a decrease of 6.55p (10.6%) over the year after adding back dividends of 3.25p per share which were paid during the year.
The Income Statement shows losses attributable to equity shareholders for the year of £11.7 million, comprising a revenue gain of £1.2 million and a capital loss of £12.9 million.
Investment portfolio
During the year, the Company invested £10.0 million in 16 companies, three of which were new to the portfolio. Additionally, £1.75 million was rolled over into a new investment as part of an exit transaction.
£12.5 million of proceeds were received from full and partial disposals of 13 investments, producing a net realised loss of £633,000.
The whole portfolio showed unrealised losses of £11.7 million. £7.8 million of this arose from the quoted growth investments, £3.5 million from the unquoted growth investments and £0.4 million from the yield focused investments. £2.5 million of loan stock interest income was recognised in respect of the yield focussed investments.
Further details on the investment portfolio can be found within the Investment Adviser’s Reports and the Review of Investments.
Dividends
Thames Ventures VCT 1’s policy is to seek to pay annual dividends of at least 4% of net assets per annum.
The Board is proposing to pay a final dividend of 1.0p per share on 15 September 2023, subject to Shareholder approval at the forthcoming AGM, to Shareholders on the register at 11 August 2023. This will bring total dividends in respect of the year ended 31 March 2023 to 2.5p per share (2022: 3.0p), equivalent to 4.1% of the opening net assets.
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. Shareholders can change their election via the Thames Ventures Investor Hub provided by City Registrars at:
thames-ventures-vcts.cityhub.uk.com
or by contacting the registrar. The last date for elections in respect of the above dividend under the Company’s Dividend Reinvestment Scheme is 25 August 2023.
Fundraising
The Company launched a non-Prospectus top-up offer in November 2021. The offer closed during the period at the end of April 2022, having raised £1.9 million, of which £1.8 million was allotted during the period.
The Company launched a full offer for subscription on 31 October 2022. The offer has raised £1.5 million to date, with funds allotted following the period end and is scheduled to close on 31 July 2023, although may be extended for a short further period.
The level of funds raised is disappointing being only slightly more than was spent on share buybacks. The Board is taking advice on how the marketing of future offers can be improved.
Share buybacks
The Company continues to operate a policy of buying in its own shares that become available in the market at a 5% discount to NAV (subject to liquidity and regulatory restrictions).
During the year, the Company purchased and subsequently cancelled 4,540,024 shares at an average price of 54.8p per share, representing 2.6% of shares in issue at the date of the last Annual Report.
The Company retains Panmure Gordon as its corporate broker to assist in operating the share buyback process and ensuring that the quoted spread on the Company’s shares remains at a reasonable level. Contact details for Panmure Gordon can be found within the Annual Report.
Responsible investing
The Board notes the Investment Adviser, Foresight Group’s, commitment to being a “Responsible Investor”. Foresight places Environmental, Social and Governance (ESG) criteria at the forefront of its business and investment activities in line with best practice and in order to enhance returns for their investors.
Further detail on the Investment Adviser’s approach to responsible investment, including the key principles and their screening approach, can be found within the Annual Report.
VCT Qualification
At 31 March 2023, qualifying investments represented 87.4% of total investments (including cash).
The Board expects that the minimum VCT qualification level of 80% will continue to be maintained for the foreseeable future.
Directorate
Atul Devani joined the Board in December 2022 as a non-executive director of the Company. Atul has significant experience as a chairman of another VCT and also with businesses similar to those in which the Company invests and is proving to be a positive addition to the Board.
Stuart Goldsmith was an original director of the Company, then called The AIM Distribution Trust plc, in 1996 and has remained on the Board, overseeing the Company through many phases of its life. With the dust now settled on the recent changes, Stuart has decided not to stand for re-election at the forthcoming Annual General Meeting
I and my fellow directors would like to thank Stuart for his significant contribution to the Company throughout its history, working with a number of Investment Advisers/Managers and undertaking several VCT mergers and other corporate transactions to ensure the Company remains well suited for the current incarnation of the VCT Regulations. We wish Stuart well in his other ventures.
Following the AGM, the Board will comprise four non-executive directors, which the Board considers to be an appropriate size for a VCT. All of the Directors are independent of the Investment Adviser, with the exception of Chris Allner who is considered non-independent by virtue of being a partner at Downing LLP, the previous investment adviser to the Company, which still provides some services to the new investment adviser.
Annual General Meeting (“AGM”)
This year’s AGM will be held at Foresight Group LLP, The Shard, 32 London Bridge Street, London, SE1 9SG at 12:00 p.m. on 1 September 2023.
If you intend to attend the AGM, please also notify us by email to tv1agm@downing.co.uk in case there are any changes to arrangements that need to be communicated at short notice.
Three items of special business are proposed at the AGM:
- one in respect of the authority to buy back shares as noted above; and
- two in respect of the authority to allot shares.
The authority to allot shares provides the Board with the opportunity to consider raising further funds without having to necessarily incur the expense of seeking separate approval via a shareholder circular. Any further fundraising decisions will take account of the level of uninvested funds and the rate of investment.
Outlook
The Board is naturally disappointed with the fall in net asset value over the year but does note that nearly 70% of the fall is down to falling share prices of its quoted investments which could quickly reverse itself if sentiment towards small, quoted UK companies becomes more positive. The £3.5 million fall in unquoted growth investments is mainly the result of the write off of two investments. In an early-stage portfolio, write offs tend to come before successful gains. The Board is not complacent but does believe that the portfolio has exhibited signs that it is relatively resilient, and the portfolio companies can take advantage of better conditions when they arrive.
The Board is pleased to note how the investment advisory team has developed since moving to Foresight and hopes that, with more resources dedicated to advising the Company and the support of the wider Foresight Group, we will see a regular flow of high-quality new investment opportunities, as well as strong support for the existing portfolio, that can deliver improved results for Shareholders in future.
Looking ahead, the Board is considering some options for the future of the Company and will look to pursue any that it concludes may benefit Shareholders and allow the Company to be better placed to serve them.
Chris Kay
Chairman
Investment Adviser’s Report – Unquoted Growth
Portfolio overview
At 31 March 2023, the Company held total Unquoted investments of £51.8 million (2022: £59.3 million), split £38.0 million (2022: £40.7 million) Unquoted Growth and £13.8 million (2022: £18.6 million) Unquoted Yield-focused. Details of the Unquoted Yield-focused portfolio performance are set out below.
The Unquoted Growth portfolio comprises 36 companies, across a range of sectors. Following a period of recovery during the year ended 31 March 2022, investment valuations for the year ended 31 March 2023 have been unfavourably impacted by the downturn of the UK economy and challenging market environment, resulting in an overall unrealised loss of £3.5 million (2022: gain of £3.6 million) in the portfolio.
Portfolio composition
With a significant level of investment activity over the year to 31 March 2023, we have aimed to reduce the level of diversification in the Unquoted Growth portfolio with a focus on deep tech and software enterprise. As at the year end, the main sector in which this portfolio is invested in is Software Enterprise, now representing approximately 55% of the investment portfolio following further investment into this sector during the period of £8.0 million.
Investment activity
During the period, there was a high level of realisation and investment activity with £10.0 million of proceeds generated from exits and a total of £11.2 million invested into unquoted growth companies.
Four new investments were added to the unquoted growth portfolio:
Audioscenic Limited (£400,000) is a spin-out from the University of Southampton’s Institute of Sound and Vibrational Research and has developed a software-based solution that unlocks the full potential of 3D audio.
Kluster Enterprises Limited (£1,235,000) is a B2B SaaS platform that empowers companies to plan and execute on their revenue strategy. Kluster integrates into both CRM and accounting tools to provide detailed and accurate forecasts which can be used for financial planning.
Flock Limited (£930,000) is a fully digital insurtech Managing General Agent (MGA) reinventing commercial fleet insurance. Flock leverage connected vehicle data and geospatial data to accurately quantify driving risk which provides the fleet of customers with insights to enable safer driving.
CommerceIQ (£1,749,000) is a pioneer in helping brands win on retail ecommerce channels. Their unified platform applies machine learning and automation across marketing, supply chain, and sales operations to help brands gain market share profitably.
Follow on investments totalling £5.2 million were made into eleven companies, most notably Hackajob Limited (£1.5 million), StorageOS Inc (£825,000), Vivacity Labs Limited (£789,000), FVRVS Limited (£402,000) and Maestro Media Limited (£320,000).
Details of the investment realisations during the year are set out below. Total proceeds of £10.0 million were generated, producing a gain over cost of £543,000, although representing a loss over holding value of £380,000.
The largest gain in the period related to Efundamentals Group Limited, a Software as a Service (SaaS) analytics company. The investment was sold in July 2022, returning £3.7 million, resulting in a gain over cost of £2.2 million, however, a loss over opening value of £137,000.
StorageOS Inc (trading as OnDat), a cloud-based storage management software solution developed to manage storage issues, was sold in the period, generating proceeds of £3.0 million, resulting in a loss over cost of £776,000 and a loss over the opening holding value of £727,000.
Firefly Learning Limited, an edtech e-learning platform which allows teachers, students and parents to share lesson plans and review homework, was sold during the period, generating proceeds of £1.0 million. This investment was valued at cost and the exit produced a small realised loss against both cost and value of £32,000.
Streethub Limited (trading as Trouva), an online marketplace for a curated range of homeware and lifestyle products, was sold during the period, generating proceeds of £194,000. The value of this investment was written down in 2022 as a result of the business trading significantly behind budget therefore a gain over value of £115,000 was realised. It should be noted, however, that this was a disappointing overall loss against the original cost of £1.3 million.
Further deferred consideration was received from Avid Technology Group Limited in relation to the exit in 2022, producing further proceeds of £91,000 in the year.
Portfolio valuation
Although there were some strong performers in the unquoted growth portfolio, overall, companies have struggled in the challenging macroeconomic environment which is reflected in the year-on-year movement in valuations. This has resulted in a total unrealised loss of £3.5 million in the period, including unrealised foreign exchange gains of £585,000.
Of the £3.5 million total unrealised loss, the most significant movements are noted below.
The largest gain in value was in Cornelis Networks, Inc, which delivers purpose-built high-performance fabrics for High Performance Computing (HPC), High Performance Data Analytics (HPDA) and Artificial Intelligence (AI).
During the period, the company was uplifted by £2.3 million, including the impact of foreign exchange. This revaluation is the result of a calibration to the price set by a funding round during the year.
Bulbshare Limited, a company that enables brands to build communities from their existing customers, has performed well during the year with revenues continuing to grow resulting in a valuation uplift of £533,000 as at the year end.
Ayar Labs Inc, the developer of components for high performance computing and data centre applications, was uplifted by £533,000, including the impact of foreign exchange. This revaluation is the result of a calibration to the price set by a funding round during the year.
Maestro Media Limited, a talent-led, e-learning media platform of multichannel e-commerce technology, increased in value by £389,000 as a result of a calibration to the price set by a funding round during the year.
Virtual Class Limited (trading as Third Space Learning), a platform offering personalised online lessons from specialist tutors, was uplifted by £383,000 as a result of revenues and their customer base continuing to grow.
Disappointingly, there were a number of unrealised losses recognised during the period. Some of these came from the more vulnerable businesses within the portfolio, however there were some material losses recognised to account for funding and liquidity risks faced by some of the larger portfolio companies. The greatest unrealised loss in the period was from Glisser Limited, a virtual and hybrid events platform, a sector that has been unfavourably impacted post-pandemic, which was written down to nil during the year. This resulted in an unrealised loss of £1.9 million in the year.
Carbice Corporation Inc has developed a suite of products based on its carbon material called Carbice Carbon which is primarily used as thermal management solutions to enable greater thermal conductivity. The valuation was reduced by £1.1 million, as a result of the challenging macroeconomic environment and access to funding.
Trinny London Limited, a cosmetics and skincare brand, was revalued downwards by £619,000 due to reduced confidence in consumer spending.
FundingXchange Limited, a fintech platform delivering SME lenders insights into their portfolio trends, was revalued downwards by £510,000 to calibrate to the price of the last funding round.
Hackajob Limited, a marketplace for technical hires, was revalued downwards by £437,000 to calibrate to the price of the last funding round.
It is disappointing to report that there were two other investments that were written down to nil during the year. These were Hummingbird Technologies Limited and Channel Mum Limited resulting in a combined loss over original cost of £3.0 million and a loss over carrying value of £2.1 million.
Foresight Group LLP
Investment Adviser’s Report – Yield Focused Portfolio
Downing LLP continues to advise the Company on the Unquoted Yield Focused Portfolio under a subcontract from Foresight Group LLP.
We present a review of the yield focused investment portfolio for the year ended 31 March 2023. At the year end, the yield focused portfolio consisted of 15 investments, all of which are unquoted, with a total value of £13.8 million.
Divestment activity
During the year, the focus for the Adviser was towards investment realisations from the yield focused portfolio which resulted in four full and one partial exits, generating proceeds of £4.2 million and a loss over holding value of £253,000. There were no new or follow on investments.
Further details on each of the exits can be found below:
Harrogate Street LLP, a property developer, was fully exited towards the start of the period, generating cash proceeds of £2.8 million, resulting in a gain over holding value of £27,000. £128,000 of loan note interest was also received in addition to the capital proceeds.
Proceeds of £591,000 were received from Downing Pub EIS ONE Limited, a holding company that owned two London pub companies. The company is in the process of winding up after the sale of its pubs, with a further and final distribution expected prior to the end of 2023.
Fenkle Street LLP held an interest in a hotel in central Newcastle. A transaction to sell the hotel completed at the end of the accounting period, providing final proceeds of £772,000, resulting in a loss over holding value of £139,000.
Jito Trading Limited, which has been written down to nil since March 2020 was finally dissolved during the year following liquidation with no proceeds being received.
Another disappointing exit during the period related to Rockhopper Renewables Limited, an Indian solar farm company. In August 2022, following a series of setbacks, the interest in the company was disposed of for nil consideration, resulting in a loss over cost of £738,000.
Portfolio valuation
The yield focused portfolio was reduced in value by £440,000 during the year, with one notable unrealised loss and a number of unrealised gains. The most notable movements are as follows:
The most significant write down related to Baron House Developments LLP. The company was created to fund the development of a hotel in Newcastle. With the hotel facing challenging trading conditions, the value of the investment was written down by £1.2 million, although it should be noted that the investment is still valued at £323,000 above cost. A sales process was being progressed with a potential buyer, however, after a significant price reduction was sought, the deal has collapsed. Marketing of the hotel for sale is now starting again to identify another buyer.
Pearce and Saunders Limited, and the related Pearce and Saunders DevCo Limited, are now in the process of being wound up. Further distributions due from the company are estimated at £70,000, resulting in a reduction in value across both companies of £116,000.
The unrealised losses noted above have been offset in part by the following unrealised gains on Data Centre Response Limited and Cadbury House Holdings Limited.
Data Centre Response Limited, the maintenance provider to third party owned data centres has increased in value by £578,000 in line with anticipated exit proceeds based on corporate advisor feedback.
Cadbury House Holdings Limited owns and operates a health club, restaurant and conference centre at Cadbury House, near Bristol. The valuation has been uplifted by £474,000 during the period.
Outlook
The period has seen a number of investment realisations from the yield focused portfolio. No new yield-focused investments are expected to be made by the Company as the current VCT regulations make this difficult and all new investment activity is focused on growth ventures. We continue to closely monitor and support the existing yield focused investments and work towards suitable realisation opportunities.
Downing LLP
Investment Adviser’s Report - Quoted Growth Portfolio
Downing LLP continues to advise the Company on the Quoted Growth Portfolio under a subcontract arrangement with the Foresight Group LLP.
Investment activity
At 31 March 2023 the quoted portfolio was valued at £19.5 million, comprising 35 active investments. Over the 12-month period, the quoted portfolio produced unrealised losses of £7.8 million, reflecting a 29.3% decrease over the period compared to the FTSE AIM All Share that fell 22.4%, one of the biggest falls in the index in many years.
Markets were exceptionally volatile through much of the current reporting period. There was no shortage of reasons for concern - the Russian invasion of Ukraine, the continued hangover from Covid lockdowns, particularly in China, persistent supply chain disruptions, and growing fears over rising interest rates. The threat of recession and the possibility of a prolonged bear market also weighed on investor sentiment. The autumnal political disruptions caused by the economics of Liz Truss created further market volatility. Sentiment towards UK smaller companies has been persistently negative for investors, with the largest outflows from UK equities since records began.
Most global equity markets had a positive start to 2023, making steady gains through January. While the UK economy rallied over the month, performance was more modest than in many other developed markets. However, this was in welcome contrast to the widespread doom and gloom that characterised markets for much of the prior year.
The quoted portfolio saw little activity during the period, with two follow-on investments into existing holdings and one full exit. In April 2022, £502,000 was invested into existing holding, Downing Strategic Micro-Cap Investment Trust plc. In December 2022, an investment of £100,000 was made in the Deepmatter Group plc. Deepmatter Group subsequently delisted from the Alternative Investment Market (AIM) and continues to trade privately, with the support of Downing and its major shareholders.
Portfolio Movements
Given the challenging market backdrop, there are few gains of any materiality to discuss, reflecting the exceptional period of negative market sentiment. The two largest unrealised gains for the quoted portfolio were Cohort plc (£59,000), and Feedback plc (£46,000).
Cohort plc is the parent company of six businesses providing a wide range of services and products for British, Portuguese and other international customers in defence and security markets. The group has a long track record of profitable growth and strong execution by a conservative management team. The Investment Adviser believes that the business will continue to deliver against a strengthening outlook for defence spending across its regions. The shares trade at a discount to peers and the Adviser thinks that Cohort could be a valuable strategic asset for a larger player.
At the reporting period end, Cohort’s latest reported results covered the six months to 31 October 2022. The group reported a stronger first half, with growth in both revenue and trading profit. Management reported a record high order book of £304.2m, with over £80m of revenue deliverable in the second half of the year. Taking into account revenue recognised in the first half, this covers over 95% of consensus forecast revenue for the full financial year.
Feedback plc is a group of companies specialising in clinical communications. The group offers safer, secure and simpler alternatives to the traditional ways of working. It produces innovative technology that enhances clinical communication, accessing and storing medical information.
The group reported results for the six months to 30 November 2022 and highlighted that it had been awarded a £450k contract for a 12-month pilot extension of the Sussex Integrated Care Systems Community Diagnostic Centre development programme. It was also named as a supplier on G-Cloud 13, the UK Government's digital marketplace. The group also underlined the importance of the creation of the CareLocker consumer app, giving patients direct access to their clinical data.
The largest unrealised losses for the quoted portfolio were Anpario plc (£2.1m), Inland Homes plc (£944k), Tracsis plc (£771k) and Angle plc (£615k). In the view of the Investment Adviser, Tracsis and Angle were impacted by negative market sentiment, as opposed to any fundamentals affecting their business operations, whilst Anpario and Inland Homes have been impacted by specific headwinds affecting their business.
Anpario plc is an international producer and distributor of high-performance natural feed additives for animal health, hygiene and nutrition. Its expertise is focused on intestinal health and nutrition, and it utilises this knowledge to improve animal performance and producer profitability. The Investment Adviser believes that Anpario will continue to benefit from the trends in the growth of the world’s population, the increasing taste for meat and fish protein in developing countries, and the global tightening in food regulation.
The group announced its full-year results to 31 December 2022. The period was extremely challenging due to supply chain disruption and significant and immediate raw material and logistics price inflation. The difficult backdrop has also adversely affected many producers who have experienced input cost pressures, notably feed and energy, hurting their profitability and in some cases viability. The group has been able to implement sensitive sales price increases to partially mitigate the unprecedented raw material price inflation, and margins improved in the second half of the year. Trading in the first couple of months of 2023 has been weak and market conditions are expected to continue to be challenging through the first half of the year. However, management expects the group's performance to improve as the year progresses, supported by a strong balance sheet and new business development initiatives.
Since the period end, Anpario has announced a tender offer to buy-back shares, at a premium to the share price before the announcement. The Investment Adviser believes that this underpins the share price and demonstrates the management’s confidence in the recovery of their end markets.
Incorporated in the UK in 2005, Inland Homes plc is an AIM-quoted specialist housebuilder and brownfield developer. The group’s flexible business model allows it to adapt its activity to suit market conditions and business needs. It includes the strategic disposal of consented land, as well as the construction and forward sales of private homes and partnership housing. Inland Homes issued a trading update on 25 January 2023 which reported that the group’s expected loss before tax for the year ending 30 September 2022 is £91.0m. In September the board stated that it expected a pre-tax loss of £37.1m for the year but since then the economic outlook for the UK housebuilding industry had deteriorated. The losses include provisions of £28.8m on five ongoing construction projects, increased from £15.4m following a further review, and a £39.0m provision on asset management schemes, including the planned £600m Cavalry Barracks development in Hounslow.
The board said that it had already secured a waiver from one of its lenders in respect of its revolving credit facility on the interest cover ratio covenant for the three quarters ending 30 June 2023. Post reporting period end, the shares in the group were temporarily suspended from trading pending publication of the company’s annual audited accounts. In April 2023, Inland Homes announced that it raised £2.5 million with the issue of 25 million new Ordinary Shares, with the net proceeds used to fund working capital requirements within the company. The net tangible asset value of Inland Homes is 107.8p, with a Gross Development Value of £3.0 billion. The Investment Adviser believes that the value of the underlying equity is likely to be realised through strategic initiatives put in place by the refreshed board during the course of the coming 12 months.
Tracsis plc provides transport software solutions and condition monitoring equipment that automates and optimises the process of labour scheduling for rail and bus services. The company is predominantly based in the UK but is expanding its reach to Europe and the US. The Investment Adviser was attracted by the long-term software licences associated with the rail refranchise process, underpinning earnings forecasts. There is also significant international potential for condition monitoring equipment.
The group announced its results for the six months ended 31 January 2023 post reporting period end. The group’s first half performance was in line with the board’s expectations. Revenue and adjusted EBITDA growth was underpinned by strong rail technology recurring revenue growth in both the UK and North America, and new large contract wins across Remote Condition Monitoring and Smart Ticketing. There was also good growth in the Data, Analytics, Consultancy and Events division. The future opportunity pipeline is strong and the UK rail industry's transition to a new Great British Railways structure will continue to drive interest in product solutions that will deliver a data-driven, customer-focused, safety-critical future for the industry.
Angle plc is a world-leading liquid biopsy company. The group announced results for the year ended 31 December 2022 and highlighted that it was a breakthrough year for Angle, with both FDA clearance and excellent results from the ovarian cancer study. Management stated that it was the world's first ever FDA product clearance for a system to harvest CTCs, intact living cancer cells, from metastatic breast cancer patient blood for subsequent analysis. This was followed by Angle's ovarian cancer study demonstrating the clinical validity of analysing Parsortix CTCs for real-world clinical applications.
The increasing number of published studies for a variety of cancer types combined with the FDA clearance have placed Angle in a strong position to play a leading role in the emerging liquid biopsy market for personalised cancer care. The CTCs harvested by the Parsortix system have wide applicability for diagnosis, treatment selection, and monitoring to improve patient outcomes and reduce healthcare costs.
Outlook
With the continuing macro-economic uncertainty, it is difficult to be hugely positive in the short-term. There have been limited opportunities within the new issues and IPO market, for VCT qualifying opportunities and we believe that this depressed market sentiment could continue for the remainder of the calendar year. Meanwhile, we will continue to focus on the portfolio management of this maturing, quality collection of smaller companies, where we believe the strong fundamentals of the underlying businesses will take advantage of any improvement in their end markets.
Downing LLP
Review of Investments
Portfolio of investments
The following investments, all of which are incorporated in England and Wales, were held at 31 March 2023:
| Cost | Valuation | Valuation movement in year | % of portfolio by value | Loan stock Interest Recognised in the period | Total value of other funds also managed by Foresight^ | |||||
| £’000 | £’000 | £’000 | £’000 | £’000 | ||||||
| Quoted growth investments | ||||||||||
| Tracsis plc* | 1,443 | 6,782 | (771) | 7.8% | - | - | ||||
| Downing Strategic Micro-Cap Investment Trust plc*** | 5,699 | 3,740 | (260) | 4.3% | - | 3,162 | ||||
| Impact Healthcare REIT plc*** | 1,518 | 1,421 | (353) | 1.6% | - | - | ||||
| Anpario plc* | 1,448 | 1,206 | (2,134) | 1.4% | - | - | ||||
| Cohort plc* | 394 | 899 | 59 | 1.0% | - | |||||
| Craneware plc* | 353 | 874 | (388) | 1.0% | - | - | ||||
| GENinCode plc* | 800 | 700 | (382) | 0.8% | - | - | ||||
| Vianet Group plc* | 756 | 567 | (102) | 0.7% | - | - | ||||
| Let’s Explore Group plc* (formerly Immotion Group plc) | 500 | 425 | (121) | 0.5% | - | - | ||||
| Feedback plc* | 400 | 348 | 46 | 0.4% | - | - | ||||
| Brooks Macdonald Group plc* | 257 | 333 | (112) | 0.4% | - | - | ||||
| Libertine Holdings plc* | 350 | 298 | (147) | 0.3% | - | - | ||||
| Inland Homes plc* | 1,311 | 210 | (944) | 0.2% | - | - | ||||
| EnerAqua Technology plc* | 195 | 204 | 18 | 0.2% | - | - | ||||
| Pittards plc* | 1,350 | 169 | (529) | 0.2% | - | - | ||||
| Pennant International Group plc* | 335 | 165 | 5 | 0.2% | - | - | ||||
| SysGroup plc* | 377 | 157 | 13 | 0.2% | - | - | ||||
| Angle plc* | 570 | 153 | (615) | 0.2% | - | - | ||||
| Frontier IP Group plc* | 30 | 146 | (45) | 0.2% | - | - | ||||
| Norman Broadbent plc* | 906 | 135 | (60) | 0.2% | - | - | ||||
| One Media Group IP plc* | 175 | 125 | (31) | 0.1% | - | - | ||||
| Verici DX plc* | 240 | 89 | (130) | 0.1% | - | - | ||||
| Dillistone Group plc* | 411 | 64 | (7) | 0.1% | - | - | ||||
| Oncimmune Holdings plc* | 278 | 57 | (144) | 0.1% | - | - | ||||
| Bonhill Group plc* | 1,000 | 56 | (38) | 0.1% | - | - | ||||
| Fireangel Safety Technology Group plc* | 545 | 37 | (11) | 0.0% | - | - | ||||
| Pressure Technologies plc* | 248 | 29 | (32) | 0.0% | - | - | ||||
| Pelatro plc* | 290 | 28 | (108) | 0.0% | - | - | ||||
| Trellus Health plc* | 175 | 26 | (57) | 0.0% | - | - | ||||
| Strip Tinning Holdings plc* | 105 | 23 | (63) | 0.0% | - | - | ||||
| Wheelsure Holdings plc** | 48 | 2 | (2) | 0.0% | - | - | ||||
| AIQ Limited | - | 1 | - | 0.0% | - | - | ||||
| DeepMatter plc* | 563 | - | (373) | 0.0% | - | - | ||||
| Flowgroup plc | 207 | - | - | 0.0% | - | - | ||||
| ACHP plc* | 61 | - | - | 0.0% | - | - | ||||
| 23,338 | 19,469 | (7,818) | 22.3% | - | 3,162 | |||||
| Unquoted growth investments | ||||||||||
| Cornelis Networks Inc | 2,102 | 4,312 | 2,256 | 5.0% | - | 8,210 | ||||
| Ayar Labs, Inc | 1,280 | 3,127 | 533 | 3.6% | - | 4,231 | ||||
| Hackajob Limited | 2,284 | 2,586 | (437) | 3.0% | - | 4,994 | ||||
| Virtual Class Limited | 1,164 | 2,295 | 383 | 2.7% | - | 3,063 | ||||
| Trinny London Limited | 443 | 1,889 | (619) | 2.2% | - | 10,846 | ||||
| Carbice Corporation | 3,020 | 1,883 | (1,083) | 2.2% | - | 1,041 | ||||
| Maestro Media Limited | 1,320 | 1,868 | 389 | 2.2% | - | 5,965 | ||||
| Rated People Ltd | 1,582 | 1,821 | (273) | 2.1% | 3 | 3,287 | ||||
| CommerceIQ, Inc | 1,749 | 1,731 | (18) | 2.0% | - | 2,371 | ||||
| Imagen Limited | 1,000 | 1,703 | (60) | 2.0% | - | 3,406 | ||||
| Parsable Inc | 1,532 | 1,506 | 84 | 1.7% | - | 2,123 | ||||
| Cambridge Touch Technologies Limited | 959 | 1,466 | 97 | 1.7% | - | 1,809 | ||||
| Vivacity Labs Limited | 1,289 | 1,443 | (15) | 1.7% | - | 4,958 | ||||
| Bulbshare Limited | 749 | 1,282 | 533 | 1.5% | - | 2,884 | ||||
| Kluster Enterprises Limited | 1,236 | 1,236 | - | 1.4% | - | 392 | ||||
| Ecstase Limited | 1,000 | 1,000 | (257) | 1.1% | - | 2,210 | ||||
| Flock Limited | 930 | 930 | - | 1.1% | - | 2,878 | ||||
| Upp Technologies Group Limited | 1,136 | 923 | (213) | 1.1% | 4 | 923 | ||||
| Masters of Pie Limited | 886 | 876 | (10) | 1.0% | 7 | 3,876 | ||||
| DSTBTD Limited | 775 | 775 | - | 0.9% | - | 1,725 | ||||
| Limitless Technology Limited | 757 | 703 | (217) | 0.8% | - | 1,545 | ||||
| FVRVS Limited | 787 | 678 | (218) | 0.8% | 2 | 3,281 | ||||
| FundingXchange Limited | 1,335 | 561 | (510) | 0.6% | - | 1,359 | ||||
| Tidalsense Limited (formerly Cambridge Respiratory Innovations Limited) | 500 | 500 | - | 0.6% | - | 1,476 | ||||
| Audioscenic Limited | 400 | 400 | - | 0.5% | - | 4,800 | ||||
| DiA Imaging Analysis Limited | 207 | 282 | 67 | 0.3% | - | 926 | ||||
| MIP Discovery Limited | 225 | 225 | 75 | 0.3% | - | 1,256 | ||||
| Hummingbird Technologies Limited | 2,250 | - | (1,750) | 0.0% | - | - | ||||
| Glisser Limited | 1,887 | - | (1,887) | 0.0% | - | - | ||||
| Empiribox Holdings Limited | 1,813 | - | - | 0.0% | - | - | ||||
| Lignia Wood Company Limited | 1,778 | - | - | 0.0% | - | - | ||||
| Live Better With Limited | 990 | - | - | 0.0% | - | - | ||||
| Channel Mum Limited | 757 | - | (310) | 0.0% | (2) | - | ||||
| Lineten Limited | 750 | - | - | 0.0% | - | - | ||||
| Ludorum plc | 177 | - | - | 0.0% | - | - | ||||
| Resource Reserve Recovery Limited | 6 | - | - | 0.0% | - | - | ||||
| 41,055 | 38,001 | (3,460) | 44.1% | 14 | 85,835 | |||||
| Unquoted yield focused investments | ||||||||||
| Doneloans Limited | 3,631 | 4,156 | (57) | 4.8% | 335 | - | ||||
| Baron House Developments LLP | 2,695 | 3,018 | (1,160) | 3.5% | 162 | - | ||||
| Data Centre Response Limited | 557 | 2,366 | 578 | 2.7% | - | - | ||||
| Cadbury House Holdings Limited | 3,082 | 2,162 | 474 | 2.5% | 2,530 | 791 | ||||
| Kimbolton Lodge Limited | 664 | 850 | (146) | 1.0% | - | - | ||||
| Pilgrim Trading Limited | 2,594 | 778 | - | 0.9% | (704) | - | ||||
| SF Renewables (Solar) Limited | 422 | 263 | (15) | 0.3% | - | - | ||||
| Downing Pub EIS ONE Limited | 68 | 94 | 2 | 0.1% | - | - | ||||
| Pearce & Saunders DevCo Limited | 84 | 70 | - | 0.1% | - | 16 | ||||
| Yamuna Renewables Limited | 2,500 | - | - | 0.0% | - | - | ||||
| Quadrate Catering Limited | 1,500 | - | - | 0.0% | - | - | ||||
| Pearce & Saunders Limited | 1,122 | - | (116) | 0.0% | 107 | - | ||||
| Top Ten Holdings plc | 399 | - | - | 0.0% | - | - | ||||
| Quadrate Spa Limited | 372 | - | - | 0.0% | - | - | ||||
| London City Shopping Centre Limited | 110 | - | - | 0.0% | - | - | ||||
| 19,800 | 13,757 | (440) | 15.9% | 2,430 | 807 | |||||
| Total investments | 84,193 | 71,227 | (11,718) | 82.3% | 2,444 | 89,804 | ||||
| Cash at bank and in hand | 15,282 | 17.7% | ||||||||
| 86,509 | 100.0% | |||||||||
The Company also holds investments in Golden Rock Global plc and Mining, Minerals & Metals plc (which does not show in the previous table). These investments were acquired in prior periods at negligible value as a result of reorganisations of other investments and continue to be valued at the same level.
All venture capital investments are unquoted unless otherwise stated.
* Quoted on AIM
** Quoted on the Aquis Stock Exchange Growth Market
*** Quoted on the Main Market of the London Stock Exchange
The valuation movement in the period includes unrealised foreign exchange gains on £585,000.
^Includes investment made by Thames Ventures EIS, Thames Ventures VCT 2 plc, Foresight Williams EIS and Foresight Solar and Technology VCT plc.
Investment movements for the year ended 31 March 2023
Additions
| £’000 | |
| Quoted growth investments | |
| Downing Strategic Micro-Cap Investment Trust plc | 502 |
| Deepmatter plc | 100 |
| 602 | |
| Unquoted growth investments | |
| Hackajob Limited* | 3,000 |
| CommerceIQ, Inc | 1,749 |
| Kluster Enterprises Limited | 1,235 |
| Flock Limited | 930 |
| StorageOS Inc | 825 |
| Vivacity Labs Limited | 789 |
| Glisser Limited | 588 |
| FVRVS Limited* | 537 |
| Audioscenic Limited | 400 |
| Maestro Media Limited | 320 |
| FundingXchange Limited | 285 |
| Masters of Pie Limited | 219 |
| Rated People Limited | 200 |
| Upp Technologies Group Limited | 59 |
| Channel Mum Limited | 20 |
| 11,156 | |
| Total additions | 11,758 |
* The additions related to Hackajob Limited and FVRVS Limited include loan note to equity conversions equal to £1.5 million and £135,000 respectively.
Disposals
| Loan stock | ||||||
| interest | ||||||
| Profit/ | Realised | recognised | ||||
| Value at | (loss) vs | gain/ | in the | |||
| Cost | 01/04/22* | Proceeds | cost | (loss) | period | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| Quoted growth investments | ||||||
| MI Downing UK Micro-Cap Growth Fund | 2 | 2 | 2 | - | - | - |
| 2 | 2 | 2 | - | - | - | |
| Unquoted growth investments (including loan note redemptions) | ||||||
| ADC Biotechnology Limited | - | - | 310 | 310 | 310 | - |
| StreetHub Limited | 1,446 | 79 | 194 | (1,252) | 115 | (2) |
| Avid Technology Group Limited | - | - | 91 | 91 | 91 | - |
| FVRVS Limited** | 125 | 125 | 125 | - | - | - |
| Hackajob Limited** | 1,500 | 1,500 | 1,500 | - | - | - |
| Firefly Learning Limited | 1,047 | 1,047 | 1,015 | (32) | (32) | - |
| E-fundamentals (Group) Limited | 1,508 | 3,847 | 3,710 | 2,202 | (137) | (2) |
| StorageOS Inc | 3,795 | 3,746 | 3,019 | (776) | (727) | - |
| 9,421 | 10,344 | 9,964 | 543 | (380) | (4) | |
| Unquoted yield focused investments (including loan note redemptions) | ||||||
| Harrogate Street LLP | 1,400 | 2,778 | 2,805 | 1,405 | 27 | 14 |
| Downing Pub EIS ONE Limited | 422 | 576 | 591 | 169 | 15 | - |
| Fenkle Street LLP | 346 | 911 | 772 | 426 | (139) | 21 |
| Jito Trading Limited | 2,500 | - | - | (2,500) | - | - |
| Rockhopper Renewables Limited | 738 | 156 | - | (738) | (156) | - |
| 5,406 | 4,421 | 4,168 | (1,238) | (253) | 35 | |
| 14,829 | 14,767 | 14,134 | (695) | (633) | 31 | |
* Adjusted for purchases in the year where applicable
** Conversion of loan notes into further equity
Directors’ responsibilities statement
The Directors are responsible for preparing the Strategic Report, the Report of the Directors, the Directors’ Remuneration Report, the separate Corporate Governance Statement and the financial statements in accordance with applicable law and regulations. They are also responsible for ensuring that the annual report includes information required by the Listing Rules of the Financial Conduct Authority.
Company law requires the directors to prepare financial statements for each financial year. Under that law, the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), including Financial Reporting Standard 102, the financial reporting standard applicable in the UK and Republic of Ireland (FRS 102). Under company law, the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgments and accounting estimates that are reasonable and prudent;
- state whether the financial statements have been prepared in accordance with applicable UK Accounting Standards, subject to any material departures disclosed and explained in the financial statements;
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; and
- prepare a Directors’ Report, Strategic Report and Directors’ Remuneration Report which comply with the requirements of the Companies Act 2006.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions, and to disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
In addition, each of the directors is responsible for ensuring that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary to assess the Company’s position, performance, business model and strategy.
Income Statement
for the year ended 31 March 2023
| Year ended 31 March 2023 | Year ended 31 March 2022 | |||||||
| Revenue | Capital | Total | Revenue | Capital | Total | |||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |||
| Income | 3,031 | - | 3,031 | 4,584 | - | 4,584 | ||
| (Losses)/gains on investments | - | (12,351) | (12,351) | - | 8,619 | 8,619 | ||
| 3,031 | (12,351) | (9,320) | 4,584 | 8,619 | 13,203 | |||
| Investment management fees | (799) | (799) | (1,598) | (1,051) | (1,051) | (2,102) | ||
| Other expenses | (812) | - | (812) | (705) | - | (705) | ||
| Return/(loss) on ordinary activities before tax | 1,420 | (13,150) | (11,730) | 2,828 | 7,568 | 10,396 | ||
| Tax on total comprehensive income and ordinary activities | (228) | 228 | - | (300) | 300 | - | ||
| Return/(loss) attributable to equity shareholders | 1,192 | (12,922) | (11,730) | 2,528 | 7,868 | 10,396 | ||
| Basic and diluted return/(loss) per share | 0.7 | (7.2) | (6.5) | 1.4 | 4.5 | 5.9 | ||
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 and updated in July 2022 by the Association of Investment Companies (“AIC SORP”).
Statement of Changes in Equity
for the year ended 31 March 2023
| Called up Share Capital | Capital redemption reserve | Share premium account | Funds held in respect of shares not yet allotted | Special reserve | Capital reserve realised | Revaluation reserve | Revenue reserve | Total | |
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
| For the year ended 31 March 2022 | |||||||||
| At 1 April 2021 | 1,611 | 1,649 | 66,430 | 7,545 | 20,238 | - | 6,409 | (2,529) | 101,353 |
| Total comprehensive income | - | - | - | - | - | 2,971 | 4,897 | 2,528 | 10,396 |
| Realisation of revaluations from previous years* | - | - | - | - | - | 794 | (794) | - | - |
| Realisation of impaired valuations | - | - | - | - | - | (791) | 791 | - | - |
| Transfer between reserves* | - | - | - | - | (738) | 738 | - | - | - |
| Transactions with owners | |||||||||
| Dividends paid | - | - | - | - | - | (3,712) | - | (743) | (4,455) |
| Utilised in share issue | - | - | - | (7,545) | - | - | - | - | (7,545) |
| Unallotted shares | - | - | - | 78 | - | - | - | - | 78 |
| Issue of new shares | 213 | - | 12,605 | - | - | - | - | - | 12,818 |
| Share issue costs | - | - | - | - | (360) | - | - | - | (360) |
| Purchase of own shares** | (48) | 48 | - | - | (2,812) | - | - | - | (2,812) |
| At 31 March 2022 | 1,776 | 1,697 | 79,035 | 78 | 16,328 | - | 11,303 | (744) | 109,473 |
| For the year ended 31 March 2023 | |||||||||
| At 1 April 2022 | 1,776 | 1,697 | 79,035 | 78 | 16,328 | - | 11,303 | (744) | 109,473 |
| Total comprehensive income | - | - | - | - | - | (1,204) | (11,718) | 1,192 | (11,730) |
| Realisation of revaluations from previous years* | - | - | - | - | - | 2,438 | (2,438) | - | - |
| Realisation of impaired valuations | - | - | - | - | - | (5,445) | 5,445 | - | - |
| Transfer between reserves* | - | (1,710) | (81,236) | - | 74,984 | 7,962 | - | - | - |
| Transactions with owners | |||||||||
| Dividends paid | - | - | - | - | - | (3,751) | - | (2,104) | (5,855) |
| Utilised in share issue | - | - | - | (78) | - | - | - | - | (78) |
| Unallotted shares | - | - | - | - | - | - | - | - | - |
| Issue of new shares | 43 | - | 2,680 | - | - | - | - | - | 2,723 |
| Share issue costs | - | - | (51) | - | - | - | - | - | (51) |
| Purchase of own shares** | (45) | 45 | - | - | (2,499) | - | - | - | (2,499) |
| At 31 March 2023 | 1,774 | 32 | 428 | - | 88,813 | - | 2,592 | (1,656) | 91,983 |
* A transfer of £2.4 million representing previously recognised unrealised gains on disposal of investments during the year ended 31 March 2023 (2022: gains of £794,000) have been made from the Revaluation reserve to the Capital Reserve-realised. A transfer of £8.0 million representing realised gains on disposal of investments, less net investment impairments and the excess of capital expenses over capital income and capital dividends in the year (2022: £738,000) has been made from the Special reserve to the Capital Reserve – realised. Following the cancellation of the Capital Redemption reserve and Share Premium account subsequent to Court approval in January 2023, a transfer of £1.7 million and £81.2 million has been made from the Capital Redemption reserve and the Share Premium account, respectively, to the Special reserve.
** These shares were subsequently cancelled.
Balance Sheet
as at 31 March 2023
| 2023 | 2022 | ||||
| £’000 | £’000 | ||||
| Fixed assets | |||||
| Investments | 71,227 | 85,954 | |||
| Current assets | |||||
| Debtors | 6,828 | 3,300 | |||
| Cash at bank and in hand | 15,282 | 20,856 | |||
| 22,110 | 24,156 | ||||
| Creditors: amounts falling due within one year | (1,354) | (637) | |||
| Net current assets | 20,756 | 23,519 | |||
| Net assets | 91,983 | 109,473 | |||
| 9B9Capital and reserves | |||||
| Called up share capital | 1,774 | 1,776 | |||
| Capital redemption reserve | 32 | 1,697 | |||
| Share premium account | 428 | 79,035 | |||
| Funds held in respect of shares not yet allotted | - | 78 | |||
| Special reserve | 88,813 | 16,328 | |||
| Revaluation reserve | 2,592 | 11,303 | |||
| Revenue reserve | (1,656) | (744) | |||
| Total equity shareholders’ funds | 91,983 | 109,473 | |||
| Basic and diluted net asset value per share | 51.8p | 61.6p |
Cash Flow Statement
for the year ended 31 March 2023
| 2023 | 2022 | |||
| £’000 | £’000 | |||
| Cash flow from operating activities | ||||
| (Loss)/return on ordinary activities after taxation | (11,730) | 10,396 | ||
| Loss/(gain) on investments | 12,351 | (8,619) | ||
| (Increase) in debtors | (3,529) | (1,298) | ||
| (Decrease)/increase in creditors | (60) | 72 | ||
| Net cash generated (used in)/from operating activities | (2,968) | 551 | ||
| Cash flow from investing activities | ||||
| Purchase of investments | (11,758) | (4,619) | ||
| Proceeds from disposal of investments | 14,134 | 16,441 | ||
| Net cash inflow from investing activities | 2,376 | 11,822 | ||
| Cash flows from financing activities | ||||
| Proceeds from share issue | 1,781 | 12,121 | ||
| Funds held in respect of shares not yet allotted | (78) | (7,467) | ||
| Share issue costs | (51) | (360) | ||
| Purchase of own shares | (1,723) | (2,791) | ||
| Equity dividends paid | (4,911) | (3,758) | ||
| Net cash (outflow) from financing activities | (4,982) | (2,255) | ||
| (Decrease)/increase in cash | (5,574) | 10,118 | ||
| Net movement in cash | ||||
| Beginning of year | 20,856 | 10,738 | ||
| Net cash (outflow)/inflow | (5,574) | 10,118 | ||
| End of year | 15,282 | 20,856 |
Notes
1. General information
Thames Ventures VCT 1 plc (“the Company”) is a venture capital trust established under the legislation introduced in the Finance Act 1995 and is domiciled in the United Kingdom and incorporated in England and Wales, and its registered office is St. Magnus House, 3 Lower Thames Street, London EC3R 6HD.
2. Accounting policies
Basis of accounting
The Company has prepared its financial statements in accordance with the Financial Reporting Standard 102 (“FRS 102”) and in accordance with the Statement of Recommended Practice “Financial Statements of Investment Trust Companies” issued November 2014 and updated in July 2022 (“SORP”).
The financial statements are presented in Sterling (£) and rounded to thousands.
Going concern
After reviewing the Company’s forecasts and projections, the Directors have a reasonable expectation that the major cash outflows of the Company (most notably investments, share buybacks and dividends) are within the Company’s control and therefore the Company has sufficient cash to meet its expenses and liabilities when they fall due. The impact of the conflict in Ukraine as well as high inflation and rising interest rates has been considered. More detail on these considerations can be found within the Corporate Governance report. As such, the Board confirms that the Company has adequate resources to continue in operational existence for at least 12 months from the date of approval of the financial statements. The Company therefore continues to adopt the going concern basis in preparing its financial statements as noted further within the Corporate Governance Report.
Presentation of income statement
In order to better reflect the activities of a Venture Capital Trust and in accordance with guidance issued by the Association of Investment Companies (“AIC”), supplementary information which analyses the income statement between items of a revenue and capital nature has been presented alongside the income statement. The net revenue is the measure the Directors believe appropriate in assessing the Company’s compliance with certain requirements set out in Part 6 of the Income Tax Act 2007.
Investments
Venture capital investments are designated as “fair value through profit or loss” assets due to investments being managed and their performance evaluated on a fair value basis. A financial asset is designated within this category if it is both acquired and managed on a fair value basis, with a view to selling after a period of time, in accordance with the Company’s documented investment policy.
Investments quoted on recognised stock markets are measured using bid prices.
The valuation methodologies for unquoted instruments (comprising equity and loan notes), used by the International Private Equity Valuation guidelines to ascertain the fair value of an investment, are as follows:
- Calibration to the price of recent investment;
- Multiples;
- Net assets;
- Discounted cash flows or earnings (of the underlying business);
- Discounted cash flows (from the investment); and
- Industry valuation benchmarks.
The methodology applied takes account of the nature, facts and circumstances of the individual investment and uses reasonable data, market inputs, assumptions and estimates in order to ascertain fair value, as explained in the investment accounting policy above and addressed further in note 10 to the Annual Report. Where an investee company has gone into receivership, liquidation or administration and there is little likelihood of a recovery, the loss on the investment, although not physically disposed of, is treated as being realised.
Gains and losses arising from changes in fair value are included in the income statement as a capital item.
It is not the Company’s policy to exercise significant influence or joint control over investee companies. Therefore, the results of these companies are not incorporated into the Income Statement, except to the extent of any income accrued. This is in accordance with the SORP and FRS 102 sections 14 and 15 that do not require portfolio investments to be accounted for using the equity method of accounting.
Calibration to price of recent investment requires a level of judgment to be applied in assessing and reviewing any additional information available since the last investment date. The Board and Adviser consider a range of factors in order to determine if there is any indication of decline in value or evidence of increase in value since the recent investment date. If no such indications are noted the price of the recent investment will be used as the fair value for the investment.
Examples of signals which could indicate a movement in value are: -
- Changes in results against budget or in expectations of achievement of technical milestones patents/testing/ regulatory approvals
- Significant changes in the market of the products or in the economic environment in which it operates
- Significant changes in the performance of comparable companies
- Internal matters such as fraud, litigation or management structure.
In respect of disclosures required by the SORP for the ten largest investments held by the Company, the most recent publicly available accounts information, either as filed at Companies House, or announced to the London Stock Exchange, is disclosed. In the case of unlisted investments, this may be abbreviated information only.
Judgements in applying accounting policies and key sources of estimation uncertainty
The key estimate in the financial statements is the determination of the fair value of the unquoted investments by the Directors, as it impacts the valuation of the unquoted investments at the balance sheet date.
Of the Company’s assets measured at fair value, it is possible to determine their fair values within a reasonable range of estimates. The fair value of an investment upon acquisition is deemed to be cost. Thereafter, investments are measured at fair value in accordance with FRS 102 sections 11 and 12, together with the International Private Equity and Venture Capital Valuation Guidelines (“IPEV”).
A price sensitivity analysis of the unquoted investments is provided within the Annual Report, under Investment price risk.
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 accrual’s basis. In respect of the analysis between revenue and capital items presented within the income statement, all expenses have been presented as revenue items, except as follows:
- Expenses which are incidental to the acquisition of an investment are deducted from the Capital Account.
- Expenses which are incidental to the disposal of an investment are deducted from the disposal proceeds of the investment.
- Expenses are split and presented partly as capital items where a connection with the maintenance or enhancement of the value of the investments held can be demonstrated. Investment management fees are allocated 50% to revenue and 50% to capital, in order to reflect the Directors’ expected long-term view of the nature of the investment returns of the Company.
Taxation
The tax effects on different items in the Income Statement are allocated between capital and revenue on the same basis as the particular item to which they relate, using the Company’s effective rate of tax for the accounting period.
Due to the Company’s status as a Venture Capital Trust and the continued intention to meet the conditions required to comply with Part 6 of the Income Tax Act 2007, no provision for taxation is required in respect of any realised or unrealised appreciation of the Company’s investments.
Deferred taxation is not discounted and is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when the obligations or rights crystallise based on tax rates and law enacted or substantively enacted at the balance sheet date. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the accounts. Deferred tax assets are only recognised if it is expected that future taxable profits will be available to utilise such assets and are recognised on a non-discounted basis.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held at call with banks with an original maturity of three months or less.
Other debtors and other creditors
Other debtors (including accrued income) and other creditors are included within the accounts at amortised cost.
Share issue costs
Share issue costs have been deducted from the special reserve account.
Segmental reporting
The Company only has one class of business and one market.
Dividends payable
Dividend’s payable are recognised as distributions in the financial statements when the Company’s liability to make payment has been established, normally the payment date.
Funds held in respect of shares not yet allotted
Cash received in respect of applications for new shares that have not yet been allotted is shown as “Funds held in respect of shares not yet allotted” and recorded on the Balance Sheet and Statement of Changes in Equity.
3. Basic and diluted return per share
| 2023 | 2022 | ||
| £’000 | £’000 | ||
| Return per share based on: | |||
| Net revenue gain/(loss) for the financial year | 1,192 | 2,528 | |
| Net capital (loss)/gain for the financial year | (12,922) | 7,868 | |
| Total gain for the financial year | (11,730) | 10,396 | |
| Weighted average number of shares in issue | 179,972,333 | 177,473,899 |
As the Company has not issued any convertible securities or share options, there is no dilutive effect on return per share. The return per share disclosed therefore represents both the basic and diluted return per share.
4. Principal Risks
The Company’s investment activities expose the Company to a number of risks associated with financial instruments and the sectors in which the Company invests. The principal financial risks arising from the Company’s operations are:
- Investment risks;
- Credit risk; and
- Liquidity risk.
The Board regularly reviews these risks and the policies in place for managing them. There have been no significant changes to the nature of the risks that the Company is exposed to over the year and there have also been no significant changes to the policies for managing those risks during the year.
The risk management policies used by the Company in respect of the principal financial risks and a review of the financial instruments held at the year-end, are provided below.
Investment risks
As a VCT, the Company is exposed to investment risks in the form of potential losses and gains that may arise on the investments it holds, in accordance with its investment policy. The management of these investment risks is a fundamental part of the investment activities undertaken by the Investment Adviser and overseen by the Board. The Investment Adviser monitors investments through regular contact with management of investee companies, regular review of management accounts and other financial information and attendance at investee company board meetings. This enables the Investment Adviser to manage the investment risk in respect of individual investments. Investment risk is also mitigated by holding a diversified portfolio spread across various business sectors and asset classes.
The key investment risks to which the Company is exposed are:
- Investment price risk;
- Interest rate risk; and
- Foreign currency exposure risk
The Company has undertaken sensitivity analysis on its financial instruments, split into the relevant component parts, taking into consideration the economic climate at the time of review, in order to ascertain the appropriate risk allocation.
Investment price risk
Investment price risk arises from uncertainty about the future prices and valuations of financial instruments held in accordance with the Company’s investment objectives. It represents the potential loss that the Company might suffer through investment price movements in respect of quoted investments and also changes in the fair value of unquoted investments that it holds.
Interest rate risk
The Company accepts exposure to interest rate risk on floating-rate financial assets through the effect of changes in prevailing interest rates. The Company receives interest on its cash deposits at a rate agreed with its bankers. Investments in loan stock and fixed interest securities attract interest predominately at fixed rates. A summary of the interest rate profile of the Company’s investments is shown below.
Interest rate profile of financial assets and financial liabilities
There are three levels of interest which are attributable to the financial instruments as follows:
- “Fixed rate” assets represent investments with predetermined yield targets and comprise fixed interest and loan note investments.
- “Floating rate” assets predominantly bear interest at rates linked to the Bank of England base rate and comprise cash at bank.
- “No interest rate” assets do not attract interest and comprise equity investments, non-interest-bearing convertible loan notes, loans and receivables (excluding cash at bank) and other financial liabilities.
The Company monitors the level of income received from fixed, floating and non-interest rate assets and, if appropriate, may make adjustments to the allocation between the categories, in particular, should this be required to ensure compliance with the VCT regulations.
During the period the Bank of England base rate has increased from 0.75% per annum to 4.25% per annum at the period end. Following the period end, in June 2023, the rate increased further, to 5.0% per annum. Any potential change in the base rate at the current level would not have a material impact on the net assets and total return of the Company.
Foreign currency exposure risk
The Company has exposure to foreign currency risk through its investments in companies whose valuation is denominated and who report in US Dollars. This has resulted in an unrealised foreign exchange gains of £585,000 (2022: £511,000) during the year. Due to the relatively low exposure to companies denominated in foreign currencies, the Board considers foreign currency risk to be at an acceptable level and does not seek to mitigate such exposure as this could restrict the net returns from the foreign currency investments.
Credit risk
Credit risk is the risk that the counterparty to a financial instrument is unable to discharge a commitment to the Company made under that instrument. The Company is exposed to credit risk through its holdings of loan stock in investee companies, investments in fixed interest securities, cash deposits and debtors.
The Investment Adviser manages credit risk in respect of loan notes with a similar approach as described under investment risks above. In addition, with the exception of new investments, credit risk is mitigated by registering floating charges, covering the full par value of the loan stock in the form of fixed and floating charges over the assets of the investee companies. The strength of this security in each case is dependent on the nature of the investee company’s business and its identifiable assets. The level of security is a key means of managing credit risk. Similarly, the management of credit risk associated with interest, dividends and other receivables is covered within the investment management procedures.
Cash is mainly held at Royal Bank of Scotland plc, with a balance also maintained at Bank of Scotland plc, both of which are A-rated financial institutions. Consequently, the Directors consider that the credit risk associated with cash deposits is low.
There has been limited changes in fair value during the year that can be directly attributable to changes in credit risk.
As at 31 March 2023, of the loan stock classified as “past due”, £5,957,000 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, £778,000 falls within the banding of nil to two years past due and £5.2 million is two to five 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 2022, of the loan stock classified as “past due”, below, £911,000 related to the principal of loan notes where, although the principal remained within term, the investee company was not fully servicing the interest obligations under the loan note and was in arrears. Notwithstanding the arrears of interest, the Directors did not consider that the loan note itself had been impaired or the maturity of the principal had altered.
As at 31 March 2022, of the loan stock classified as “past due”, below, £6,760,000 related to the principal of loan notes where the principal had passed its maturity date. As at 31 March 2022, the extent to which the principal is past its maturity date, £874,000 falls within the banding of nil to two years past due and £5.9 million is two to five years past due. Notwithstanding this information, the Directors did not consider the loan notes to be impaired at 31 March 2022 or that maturity dates of the principal had altered.
Liquidity risk
Liquidity risk is the risk that the Company encounters difficulties in meeting obligations associated with its financial liabilities. Liquidity risk may also arise from either the inability to sell financial instruments when required at their fair values or from the inability to generate cash inflows as required. The Company normally has a relatively low level of creditors (2023: £1,354,000, 2022: £637,000) and has no borrowings. Most of the quoted investments held by the Company are considered to be readily realisable. The Company always holds sufficient levels of funds as cash and readily realisable investments in order to meet expenses and other cash outflows as they arise. For these reasons, the Board believes that the Company’s exposure to liquidity risk is minimal.
The Company’s liquidity risk is managed by the Investment Adviser in line with guidance agreed with the Board and is reviewed by the Board at regular intervals.
5. Related party transactions
Fees payable during the year to the Directors and their interest in shares of the Company are disclosed within the Directors’ Remuneration Report. There were no amounts outstanding and due to the Directors as at 31 March 2023 (2022: nil).
Further related party transactions include Investment Adviser and Administration fees payable to Foresight Group LLP, as disclosed in notes 4 and 5 of the Annual Report. Of the total Administration fees, £29,000 was payable to Downing LLP, who were the Investment Adviser and Administration Manager for part of the year.
In addition, Downing LLP were paid promoter fees in connection with the fundraising offer that was open during the period, which totalled £37,000 for the year ended 31 March 2023 (2022: £206,000).
The Company also has an agreement to pay an ongoing trail fee annually to Downing LLP and Foresight LLP, in connection with funds raised under original offers for subscription out of which there is an obligation to pay trail commission to intermediaries. During the year to 31 March 2023, £192,000 (2022: £172,000) was paid to Downing LLP.
ANNOUNCEMENT BASED ON AUDITED ACCOUNTS
The financial information set out in this announcement does not constitute the Company's statutory financial statements in accordance with section 434 Companies Act 2006 for the year ended 31 March 2023 but has been extracted from the statutory financial statements for the year ended 31 March 2023 which were approved by the Board of Directors on 26 July 2023 and will be delivered to the Registrar of Companies. The Independent Auditor's Report on those financial statements was unqualified and did not contain any emphasis of matter nor statements under s 498(2) and (3) of the Companies Act 2006.
The statutory accounts for the year ended 31 March 2022 have been delivered to the Registrar of Companies and received an Independent Auditors report which was unqualified and did not contain any emphasis of matter nor statements under s 498(2) and (3) of the Companies Act 2006.
A copy of the full annual report and financial statements for the year ended 31 March 2023 will be printed and posted to shareholders shortly. Copies will also be available to the public at the registered office of the Company at St. Magnus House, 3 Lower Thames Street, London EC3R 6HD and will be available for download from and www.foresightgroup.eu.
